EXHIBIT 20.1
ATMOS ENERGY CORPORATION
1800 THREE LINCOLN CENTRE
5430 LBJ FREEWAY
DALLAS, TEXAS 75240
[LOGO OF ATMOS APPEARS HERE]
October 4, 1996
Dear Atmos Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Atmos Energy Corporation ("Atmos") to be held on November 12, 1996 at 11:00
a.m., Central time. The meeting will be held at the Doubletree Hotel at
Lincoln Centre, 5410 LBJ Freeway, in Dallas, Texas.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to ratify and approve an Agreement and Plan of Reorganization dated
July 19, 1996, as amended by Amendment No. 1 to Agreement and Plan of
Reorganization dated October 3, 1996 (the "Reorganization Agreement"), by and
between Atmos and United Cities Gas Company, an Illinois and Virginia
corporation ("United Cities"), and approve the Plan of Merger (the "Plan of
Merger") and the merger of United Cities with and into Atmos (the "Merger"),
with Atmos as the surviving corporation.
The Merger is intended to be a tax-free reorganization and to be accounted
for as a pooling of interests. In order to comply with certain requirements
applicable to utilities operating in Virginia, Atmos will, following the
Merger, be incorporated both in Texas and Virginia.
The approval of this proposal will also, pursuant to the Reorganization
Agreement and Plan of Merger, constitute the approval of (a) the issuance by
Atmos of approximately 13,350,000 shares of the common stock, no par value, of
Atmos (the "Atmos Stock"), which will be delivered to the shareholders of
United Cities in connection with the Merger, (b) the adoption by Atmos of the
United Cities Gas Company Long-Term Stock Plan of 1989 (the "United Cities
Stock Plan"), (c) the adoption of certain amendments to Atmos' Restated
Articles of Incorporation to conform them to Virginia law and (d) the election
of four current directors of United Cities as directors of Atmos to take
office at the effective time of the Merger.
In the Merger, each share of common stock, no par value, of United Cities
outstanding immediately prior to the consummation of the Merger (other than
shares held by United Cities shareholders who properly exercise, and do not
subsequently lose, their statutory dissenters' rights) will be converted into
the right to receive one share of Atmos Stock (the "Exchange Ratio"). The
shares of Atmos Stock to be issued in the Merger will represent approximately
45% of the total outstanding shares of Atmos Stock after the Merger.
The basic terms and conditions of the Merger and the issuance of the shares
of Atmos Stock are summarized in the accompanying Joint Proxy
Statement/Prospectus. A copy of the Reorganization Agreement, including the
proposed Plan of Merger, is also included in the Joint Proxy
Statement/Prospectus. Please review and consider the enclosed materials
carefully.
Your Board of Directors has unanimously approved the terms and conditions of
the Reorganization Agreement, the Merger and the Plan of Merger, and has
determined that they are fair and in the best interests of Atmos and its
shareholders. In addition, the Board of Directors has received the written
opinion letter of its investment banker, Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") that, based on the assumptions described in the
letter, the Exchange Ratio is fair to Atmos from a financial point of view.
The written opinion of Merrill Lynch is attached as Exhibit B to the
accompanying Joint Proxy Statement/Prospectus and should be read carefully by
Atmos shareholders.
ATMOS ENERGY CORPORATION
1800 THREE LINCOLN CENTRE
5430 LBJ FREEWAY
DALLAS, TEXAS 75240
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 12, 1996
To the Shareholders of
Atmos Energy Corporation:
Notice is hereby given that a Special Meeting of the Shareholders of Atmos
Energy Corporation ("Atmos") will be held at the Doubletree Hotel at Lincoln
Centre, 5410 LBJ Freeway, in Dallas, Texas on November 12, 1996 at 11:00 a.m.,
Central time, for the following purposes:
1. To consider and vote upon a proposal to ratify and approve the
Agreement and Plan of Reorganization dated July 19, 1996, as amended by
Amendment No. 1 to Agreement and Plan of Reorganization dated October 3,
1996 (the "Reorganization Agreement"), by and between Atmos and United
Cities Gas Company, an Illinois and Virginia corporation ("United Cities"),
and approve the Plan of Merger (the "Plan of Merger") and the merger of
United Cities with and into Atmos, with Atmos as the surviving corporation
(the "Merger").
2. To transact any other business that may properly come before the
Special Meeting or any adjournment or postponement thereof.
Pursuant to the Plan of Merger, each share of common stock, no par value, of
United Cities ("United Cities Stock") outstanding immediately prior to the
effective time of the Merger (other than shares held by United Cities
shareholders who properly exercise, and do not subsequently lose, their
statutory dissenters' rights) will be converted into the right to receive one
share of common stock, no par value, of Atmos ("Atmos Stock"). The
Reorganization Agreement and the Plan of Merger provide for the issuance of
the shares of Atmos Stock to be issued in the Merger, the continuation of the
United Cities Gas Company Long-Term Stock Plan of 1989 by Atmos and the
substitution of Atmos Stock for United Cities Stock thereunder, the election
of four members of the Board of Directors of United Cities to the Board of
Directors of Atmos and the amendment of Atmos' Restated Articles of
Incorporation to make certain changes necessary to conform them to Virginia
law, including the incorporation of Atmos in Virginia as well as Texas.
Approval of the foregoing proposal will also constitute approval of all such
matters.
A form of proxy and a Joint Proxy Statement/Prospectus containing detailed
information about the matters to be considered at the Special Meeting
accompany this notice. A copy of the Reorganization Agreement, including the
Plan of Merger, is attached as Exhibit A to the accompanying Joint Proxy
Statement/Prospectus.
Your vote is very important. Regardless of whether you plan to attend the
Special Meeting, please execute and return the accompanying proxy as soon as
possible in the enclosed envelope. Any shareholder who signs and returns the
accompanying proxy will have the right to revoke the same at any time before
its exercise.
Only shareholders of record on the books of Atmos at the close of business
on October 9, 1996 will be entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof. A list of shareholders
entitled to vote at the Special Meeting will be available for inspection at
the principal executive offices of Atmos, 1800 Three Lincoln Centre, 5430 LBJ
Freeway, Dallas, Texas 75240.
By Order of the Board of Directors
Glen A. Blanscet
Vice President, General Counsel
and Corporate Secretary
October 4, 1996
YOUR VOTE IS VERY IMPORTANT
PLEASE RETURN YOUR PROXY AS SOON AS POSSIBLE
JOINT PROXY STATEMENT
OF
ATMOS ENERGY CORPORATION
AND
UNITED CITIES GAS COMPANY
----------------
PROSPECTUS
OF
ATMOS ENERGY CORPORATION
----------------
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") relates to the proposed merger of United Cities Gas
Company, an Illinois and Virginia corporation ("United Cities"), with and into
Atmos Energy Corporation, a Texas corporation ("Atmos"), and is being
furnished to shareholders of Atmos and United Cities in connection with the
solicitation of proxies by the Atmos Board of Directors and the United Cities
Board of Directors for use in connection with a Special Meeting of
Shareholders of Atmos (the "Atmos Shareholders Meeting") and a Special Meeting
of Shareholders of United Cities (the "United Cities Shareholders Meeting"),
respectively, each of which is to be held on November 12, 1996, or any
adjournments or postponements thereof. At such meetings, the shareholders of
each of Atmos and United Cities will consider and vote upon a proposal to
ratify and approve an Agreement and Plan of Reorganization dated July 19,
1996, as amended by Amendment No. 1 to Agreement and Plan of Reorganization
dated October 3, 1996 (the "Reorganization Agreement"), by and between Atmos
and United Cities, and approve the Plan of Merger (the "Plan of Merger") and
the merger of United Cities with and into Atmos (the "Merger"), with Atmos as
the surviving corporation. Pursuant to the Plan of Merger, each share of
Common Stock, no par value, of United Cities (the "United Cities Stock")
outstanding immediately prior to the effective time of the Merger (the
"Effective Time") (other than shares held by United Cities shareholders who
properly exercise, and do not subsequently lose, their statutory dissenters'
rights) will be converted into the right to receive one share of Common Stock,
no par value, of Atmos (the "Atmos Stock"). Each issued and outstanding share
of Atmos Stock held by Atmos shareholders will remain outstanding after the
Merger. Based on the numbers of shares outstanding as of October 2, 1996, the
holders of Atmos Stock and the holders of United Cities Stock will hold in the
aggregate approximately 55% and 45%, respectively, of the total number of
shares of Atmos Stock to be outstanding immediately after the Effective Time.
With respect to the shareholders of Atmos, the ratification and approval of
the Reorganization Agreement and approval of the Plan of Merger and the Merger
will also constitute the approval of the issuance by Atmos of the shares of
Atmos Stock to be delivered to the shareholders of United Cities in connection
with the Merger (approximately 13,350,000 shares) and the adoption of the
United Cities Gas Company Long-Term Stock Plan of 1989 ("United Cities Stock
Plan") as required by the New York Stock Exchange, Inc. (the "NYSE"), the
election of four current directors of United Cities as directors of Atmos to
take office at the Effective Time and certain amendments to Atmos' Restated
Articles of Incorporation necessary to conform them to Virginia law. In
connection with the Merger, Atmos will become incorporated in Virginia as well
as in Texas and thereafter be subject to the corporation laws of each such
state.
THE BOARDS OF DIRECTORS OF ATMOS AND UNITED CITIES EACH UNANIMOUSLY
RECOMMEND TO THEIR RESPECTIVE SHAREHOLDERS THAT THEY VOTE FOR APPROVAL OF THE
PROPOSAL TO RATIFY AND APPROVE THE REORGANIZATION AGREEMENT AND APPROVE THE
PLAN OF MERGER AND THE MERGER.
On October 2, 1996, the most recent practicable date prior to the printing
of this Joint Proxy Statement/ Prospectus, the closing price of Atmos Stock as
reported on the NYSE Composite Tape was $23.38 per share, and the closing
price of United Cities Stock as reported on The Nasdaq National Market was
$22.75 per share.
This Joint Proxy Statement/Prospectus constitutes a prospectus of Atmos
filed as part of the Registration Statement (as defined herein) with respect
to the shares of the Atmos Stock to be issued pursuant to the Merger.
This Joint Proxy Statement/Prospectus and the accompanying form of proxy are
first being sent or given to the shareholders of Atmos and United Cities on or
about October 7, 1996.
----------------
THE ATMOS STOCK TO BE ISSUED IN THE MERGER HAS NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS OCTOBER 4, 1996.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The forward-looking statements included or incorporated by reference
in this Joint Proxy Statement/Prospectus (collectively, the "Forward-Looking
Statements") are based on Atmos' and United Cities' historical operating
trends and other information available to the managements of Atmos and United
Cities. These statements assume that no significant changes will occur in the
operating environment for Atmos and United Cities prior to or following the
Merger. Atmos and United Cities caution that the Forward-Looking Statements
are subject to all the risks and uncertainties discussed under the captions
"Summary," "Selected Historical and Pro Forma Financial Information,"
"Background of the Merger," "The Reorganization Agreement and The Merger" and
"Unaudited Pro Forma Combined Condensed Financial Statements" and in the
documents incorporated by reference herein. Moreover, Atmos or United Cities
or both may make material acquisitions, execute new contracts, terminate
existing contracts or enter into new financing transactions that may affect
the accuracy of the Forward-Looking Statements. None of these events can be
predicted with certainty and, accordingly, are not taken into consideration in
the Forward-Looking Statements made herein. For all of the foregoing reasons,
actual results may vary materially from the Forward-Looking Statements and
there is no assurance that the assumptions used are necessarily the most
likely to occur. Neither Atmos nor United Cities assumes any obligation to
update the Forward-Looking Statements to reflect actual results, changes in
assumptions or changes in other factors affecting the Forward-Looking
Statements.
----------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES OR THE
OFFERING COVERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY ATMOS, UNITED CITIES OR ANY OTHER PERSON. THIS JOINT PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO BUY, ATMOS STOCK, OR THE SOLICITATION OF A PROXY, IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE FACTS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR IN THE
AFFAIRS OF ATMOS OR UNITED CITIES OR THAT ANY INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
AVAILABLE INFORMATION
Atmos and United Cities are each subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
in accordance therewith file reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information filed by Atmos and United Cities with
the Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street,
NW, Washington, D.C. 20549 and at its Regional Offices in Chicago, Illinois at
500 W. Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and in New
York, New York at 7 World Trade Center, Suite 1300, New York, New York 10048.
Copies of such materials may be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C.
20549 at prescribed rates. Additionally, copies of reports, proxy statements
and other information filed with the Commission electronically by each of
Atmos and United Cities may be inspected by accessing the Commission's
Internet site at http://www.sec.gov. Furthermore, shares of Atmos Stock are
listed on the NYSE and the reports, proxy statements and other information
with respect to Atmos may also be inspected at the NYSE at 20 Broad Street,
New York, New York 10005. Shares of United Cities Stock are quoted on The
Nasdaq National Market. Reports and other information concerning United Cities
may be inspected at the offices of The Nasdaq Stock Market, Inc. Listing
Section, 1735 K Street, NW, Washington, D.C. 20006.
2
Atmos has filed a Registration Statement on Form S-4 (together with all
amendments, schedules and exhibits thereto, the "Registration Statement") with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Atmos Stock to be issued in connection
with the Merger. This Joint Proxy Statement/Prospectus also constitutes the
Prospectus of Atmos filed as part of the Registration Statement. This Joint
Proxy Statement/Prospectus contains information concerning Atmos but does not
contain all of the information set forth in the Registration Statement,
certain portions having been omitted pursuant to the rules and regulations of
the Commission. Statements contained in this Joint Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein are
not necessarily complete, and, in each instance, reference is made to a copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES CERTAIN DOCUMENTS BY
REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF ANY
SUCH DOCUMENTS RELATING TO ATMOS, OTHER THAN EXHIBITS TO SUCH DOCUMENTS
(UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH
DOCUMENTS), ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF ATMOS STOCK, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS
IS DELIVERED, UPON REQUEST FROM ATMOS ENERGY CORPORATION, 1800 THREE LINCOLN
CENTRE, 5430 LBJ FREEWAY, DALLAS, TEXAS 75240, ATTENTION: INVESTOR RELATIONS,
(800) 38-ATMOS (382-8667). COPIES OF ANY SUCH DOCUMENTS RELATING TO UNITED
CITIES, OTHER THAN EXHIBITS TO SUCH DOCUMENTS (UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS), ARE AVAILABLE
WITHOUT CHARGE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF UNITED CITIES
STOCK, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON
REQUEST FROM UNITED CITIES GAS COMPANY, 5300 MARYLAND WAY, BRENTWOOD,
TENNESSEE 37027, ATTENTION: INVESTOR RELATIONS, (800) 342-4413, EXTENSION 233.
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE
MADE NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE SHAREHOLDER MEETINGS.
The following documents filed by Atmos (File No. 1-10042) with the
Commission pursuant to the Exchange Act are incorporated in this Joint Proxy
Statement/Prospectus by reference:
(a) Atmos' Annual Report on Form 10-K for the fiscal year ended September
30, 1995;
(b) Atmos' Quarterly Report on Form 10-Q for the quarter ended December 31,
1995;
(c) Atmos' Quarterly Report on Form 10-Q for the quarter ended March 31,
1996;
(d) Atmos' Quarterly Report on Form 10-Q for the quarter ended June 30,
1996;
(e) Proxy Statement for Atmos' 1996 Annual Meeting of Shareholders;
provided that only the following portions of such Proxy Statement are
incorporated by reference in this Joint Proxy Statement/Prospectus:
"Security Ownership of Certain Beneficial Owners and Management" (pages
1-2); "Election of Directors" (pages 4-6); "Certain Business
Relationships" (page 6); and "Executive Compensation" (pages 10-20);
and
(f) Atmos' Current Report on Form 8-K dated July 19, 1996.
3
The following documents filed by United Cities (File No. 0-1284) with the
Commission pursuant to the Exchange Act are incorporated in this Joint Proxy
Statement/Prospectus by reference:
(a) United Cities' Annual Report on Form 10-K for the fiscal year ended
December 31, 1995;
(b) United Cities' Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996;
(c) United Cities' Quarterly Report on Form 10-Q for the quarter ended June
30, 1996;
(d) United Cities' Amendment to Quarterly Report on Form 10-Q/A for the
quarter ended June 30, 1996;
(e) Proxy Statement for United Cities' 1996 Annual Meeting of Shareholders;
provided that only the following portions of such Proxy Statement are
incorporated by reference in this Joint Proxy Statement/Prospectus:
"Proposal 1--Election of Directors" (pages 2-5); "Security Ownership of
Certain Beneficial Owners" (page 6) and "Security Ownership of
Management" (page 6); and "Executive Compensation" (pages 8-11);
(f) United Cities' Current Report on Form 8-K dated May 3, 1996;
(g) United Cities' Current Report on Form 8-K dated May 24, 1996;
(h) United Cities' Current Report on Form 8-K dated May 31, 1996;
(i) United Cities' Current Report on Form 8-K dated July 1, 1996;
(j) United Cities' Current Report on Form 8-K dated July 19, 1996; and
(k) United Cities' Current Report on Form 8-K dated August 2, 1996.
All documents filed by Atmos or United Cities pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Joint
Proxy Statement/Prospectus and prior to the date of the Atmos and United
Cities shareholder meetings shall be deemed to be incorporated by reference in
this Joint Proxy Statement/ Prospectus and to be a part hereof from the date
of filing such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be
modified or superseded, for purposes of this Joint Proxy Statement/Prospectus,
to the extent that a statement contained herein (or in any subsequently filed
document which is deemed to be incorporated by reference herein) modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement/Prospectus.
All information contained in this Joint Proxy Statement/Prospectus relating
to Atmos has been supplied by Atmos and all information relating to United
Cities has been supplied by United Cities. Neither Atmos nor United Cities
makes any representation as to the accuracy or completeness of information
relating to the other.
4
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........................... 2
AVAILABLE INFORMATION....................................................... 2
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........................... 3
SUMMARY..................................................................... 7
The Parties to the Merger................................................. 7
The Shareholders Meetings................................................. 7
Terms of the Merger....................................................... 8
Recommendations of the Boards of Directors................................ 11
Reasons for the Merger.................................................... 11
Opinions of Financial Advisors............................................ 12
Certain Federal Income Tax Consequences................................... 12
Accounting Treatment...................................................... 13
Management Following the Merger........................................... 13
Interests of Certain Persons in the Merger................................ 14
Shareholder Rights........................................................ 15
Rights of Dissenting Shareholders......................................... 15
Standstill Agreement...................................................... 16
Comparative Market Prices and Dividends................................... 16
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION..................... 17
Atmos Selected Historical Financial Information........................... 17
United Cities Selected Historical Financial Information................... 19
Selected Unaudited Pro Forma Combined Financial Information............... 21
PARTIES TO THE MERGER....................................................... 22
Business of Atmos......................................................... 22
Business of United Cities................................................. 23
The Natural Gas Distribution Industry..................................... 23
GENERAL INFORMATION REGARDING THE ATMOS SHAREHOLDERS MEETING................ 24
Place, Time and Date of Atmos Shareholders Meeting........................ 24
Purpose of the Atmos Shareholders Meeting................................. 24
Vote Required for Approval; Record Date................................... 24
Solicitation and Revocability of Proxies.................................. 26
GENERAL INFORMATION REGARDING THE UNITED CITIES SHAREHOLDERS MEETING........ 27
Place, Time and Date of United Cities Shareholders Meeting................ 27
Purpose of the United Cities Shareholders Meeting......................... 27
Vote Required for Approval; Record Date................................... 27
Solicitation and Revocability of Proxies.................................. 28
BACKGROUND OF THE MERGER.................................................... 30
History of the Merger Negotiations........................................ 30
Reasons for the Merger; Recommendations of the Boards of Directors........ 34
Opinion of Atmos' Financial Advisor....................................... 37
Opinion of United Cities' Financial Advisor............................... 41
THE REORGANIZATION AGREEMENT AND THE MERGER................................. 45
General................................................................... 45
Effective Time; Effect of Merger.......................................... 45
Conversion of Shares; Fractional Shares................................... 46
5
Exchange of Certificates................................................. 46
Treatment of United Cities Options....................................... 46
Directors and Officers................................................... 46
Charter and Bylaws; Effect of Dual Incorporation......................... 47
Conditions to the Merger................................................. 47
Representations, Warranties and Covenants................................ 49
Amendment, Termination and Waiver........................................ 51
Non-Survival of Representations, Warranties and Agreements; Effect of
Termination............................................................. 52
No-Solicitation Covenant, Fiduciary Duties, Termination Fee and Ex-
penses.................................................................. 52
Federal Income Tax Consequences.......................................... 54
Accounting Treatment..................................................... 55
Election of Directors.................................................... 55
Interests of Certain Persons in the Merger............................... 56
Standstill Agreement..................................................... 60
Woodward Marketing, L.L.C................................................ 61
Regulatory Matters....................................................... 61
Environmental Matters.................................................... 63
Restrictions on Resales of Atmos Stock................................... 64
Dissenters' Rights....................................................... 64
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS................ 67
MANAGEMENT OF ATMOS FOLLOWING THE MERGER................................... 75
Directors................................................................ 75
Officers................................................................. 76
UNITED CITIES STOCK PLAN................................................... 78
COMPARISON OF SHAREHOLDER RIGHTS........................................... 81
Post-Merger Articles of Incorporation and Bylaws......................... 81
Authorized Capital Stock................................................. 82
Amendments to Charter.................................................... 83
Amendments to Bylaws..................................................... 83
Election and Removal of Directors........................................ 84
Special Shareholder Voting Requirements.................................. 85
Shareholder Meetings..................................................... 86
Action By Written Consent................................................ 86
Limitation of Liability; Indemnification................................. 86
Dissenters' Rights....................................................... 88
Anti-Takeover Provisions................................................. 88
LEGAL MATTERS.............................................................. 92
EXPERTS.................................................................... 92
SHAREHOLDER PROPOSALS...................................................... 93
EXHIBITS
A--Agreement and Plan of Reorganization and Plan of Merger, as amended by
Amendment No. 1 to Agreement and Plan of Reorganization
B--Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated
C--Opinion of PaineWebber Incorporated
D--Sections 11.65 and 11.70 of the Illinois Business Corporation Act of
1983
6
SUMMARY
The following is a summary of certain information included or incorporated by
reference in this Joint Proxy Statement/Prospectus. The information contained
in this summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information appearing elsewhere in this
Joint Proxy Statement/Prospectus, the exhibits hereto and the documents
incorporated herein by reference. Shareholders are encouraged to read carefully
all of the information included or incorporated by reference in this Joint
Proxy Statement/Prospectus.
THE PARTIES TO THE MERGER
Atmos. Atmos is primarily engaged in the distribution and sale of natural gas
to approximately 673,000 residential, commercial, industrial, agricultural and
other customers in over 400 cities, towns and communities in parts of Texas,
Kentucky, Colorado, Kansas, Missouri and Louisiana. The principal executive
offices of Atmos are located at 1800 Three Lincoln Centre, 5430 LBJ Freeway,
Dallas, Texas 75240, and the telephone number at that address is (972) 934-
9227. See "Parties to the Merger."
United Cities. United Cities' predominant business is the distribution of
natural gas. United Cities supplies natural gas service to approximately
314,000 customers in Tennessee, Illinois, Missouri, Kansas, Iowa, Georgia,
South Carolina and Virginia. United Cities also serves approximately 26,000
propane customers in Tennessee, North Carolina and Virginia. United Cities'
principal executive offices are located at 5300 Maryland Way, Brentwood,
Tennessee 37027, and its telephone number is (615) 373-5310. See "Parties to
the Merger."
THE SHAREHOLDERS MEETINGS
Atmos. The Atmos Shareholders Meeting will be held on November 12, 1996 at
the Doubletree Hotel at Lincoln Centre, 5410 LBJ Freeway, Dallas, Texas,
commencing at 11:00 a.m., Central time, for the purpose of considering and
voting on a proposal to ratify and approve the Reorganization Agreement and
approve the Plan of Merger and the Merger. The Reorganization Agreement and the
Plan of Merger provide for the issuance by Atmos of shares of Atmos Stock that
will be delivered to the shareholders of United Cities in connection with the
Merger, the adoption of the United Cities Stock Plan, the adoption of certain
amendments to Atmos' Restated Articles of Incorporation necessary to comply
with Virginia law and the election of four current directors of United Cities
as directors of Atmos to take office at the Effective Time. Only holders of
record of Atmos Stock at the close of business on October 9, 1996 will be
entitled to notice of and to vote at the meeting. As of October 9, 1996, there
were 16,029,581 shares of Atmos Stock issued and outstanding, each of which is
entitled to one vote.
Ratification and approval of the proposal will require the affirmative vote
of the holders of two-thirds of the issued and outstanding shares of Atmos
Stock entitled to vote at the meeting. Such vote will be sufficient to satisfy
(i) the requirements under Texas law and Atmos' Restated Articles of
Incorporation for approval of the Plan of Merger and (ii) the requirements
under Atmos' listing agreement with the NYSE for approval of the issuance of
Atmos Stock in the Merger and adoption of the United Cities Stock Plan.
As of October 9, 1996, Atmos' directors and executive officers beneficially
owned approximately 8.2% of the outstanding Atmos Stock entitled to vote at the
Atmos Shareholders Meeting. ALL SUCH DIRECTORS AND EXECUTIVE OFFICERS HAVE
INDICATED THAT THEY WILL VOTE THEIR SHARES OF ATMOS STOCK FOR THE RATIFICATION
AND APPROVAL OF THE REORGANIZATION AGREEMENT AND APPROVAL OF THE PLAN OF MERGER
AND THE MERGER.
See "General Information Regarding the Atmos Shareholders Meeting."
7
United Cities. The United Cities Shareholders Meeting will be held on
November 12, 1996 at the Fifth Floor Auditorium of the First American Center,
326 Union Street, Nashville, Tennessee, commencing at 10:30 a.m., Central time,
for the purpose of considering and voting on a proposal to ratify and approve
the Reorganization Agreement and approve the Plan of Merger and the Merger. The
affirmative vote of the holders of a majority of the outstanding shares of
United Cities Stock entitled to vote thereon at the meeting is required to
ratify and approve the Reorganization Agreement and approve the Plan of Merger
and the Merger. Only holders of record of United Cities Stock at the close of
business on October 2, 1996 will be entitled to vote at the meeting. As of
October 2, 1996, there were 13,174,794 shares of United Cities Stock issued and
outstanding, each of which is entitled to one vote.
As of October 2, 1996, United Cities' directors and executive officers
beneficially owned approximately 2.6% of the outstanding United Cities Stock
entitled to vote at the United Cities Shareholders Meeting, excluding shares
that such persons have the right to acquire within 60 days of such date
pursuant to options or other rights. ALL SUCH DIRECTORS AND EXECUTIVE OFFICERS
HAVE INDICATED THAT THEY WILL VOTE THEIR SHARES OF UNITED CITIES STOCK FOR THE
RATIFICATION AND APPROVAL OF THE REORGANIZATION AGREEMENT AND APPROVAL OF THE
PLAN OF MERGER AND THE MERGER.
See "General Information Regarding the United Cities Shareholders Meeting."
TERMS OF THE MERGER
General Terms. Upon consummation of the transactions contemplated by the
Reorganization Agreement, United Cities will be merged with and into Atmos,
with Atmos as the surviving corporation. A copy of the Reorganization
Agreement, together with the Plan of Merger, is attached as Exhibit A to this
Joint Proxy Statement/Prospectus.
In accordance with the Reorganization Agreement and the Plan of Merger, upon
the Merger becoming effective, each share of United Cities Stock outstanding
immediately prior to the Effective Time (other than shares held by United
Cities shareholders who properly exercise, and do not subsequently lose, their
statutory dissenters' rights) will be converted into the right to receive one
share of Atmos Stock (the "Exchange Ratio"). Holders of options to acquire
United Cities Stock under the United Cities Stock Plan will, after the
Effective Time, be allowed to exercise their options for Atmos Stock at the
same Exchange Ratio of one share of Atmos Stock for each share of United Cities
Stock. Holders of stock appreciation rights under the United Cities Stock Plan
will also be allowed to exercise such rights based on the price of Atmos Stock.
Each share of Atmos Stock outstanding prior to the Effective Time of the Merger
will remain outstanding after the Merger. See "The Reorganization Agreement and
The Merger--Conversion of Shares; Fractional Shares" and "--Exchange of
Certificates."
As of October 2, 1996, 16,029,581 shares of Atmos Stock were outstanding and
13,174,794 shares of United Cities Stock were outstanding. Accordingly, the
holders of Atmos Stock and the holders of United Cities Stock will hold in the
aggregate approximately 55% and 45%, respectively, of the total number of
shares of Atmos Stock to be outstanding immediately after the Effective Time.
The Merger will become effective at a date to be specified in the filings to
be made with the Secretary of State of Texas, the Secretary of State of
Illinois and the State Corporation Commission of the Commonwealth of Virginia.
Filings for the issuance of Certificates of Merger will be made upon the
closing of the Merger (the "Closing" and the "Closing Date") and will specify a
date of effectiveness that closely follows the filings. The Closing will take
place as soon as practicable following the ratification and approval of the
Reorganization Agreement and the approval of the Plan of Merger and the Merger
by the Atmos and United Cities shareholders and the satisfaction or waiver of
the other conditions to each party's obligations to consummate the Merger,
8
including the receipt of all necessary regulatory approvals and consents. Due
to the time that may be required to obtain such approvals and consents, the
Merger may not be consummated for a period of time after the meetings of the
Atmos and United Cities shareholders. Atmos and United Cities do not currently
expect to receive all necessary approvals and consents prior to March 1, 1997,
and, accordingly, do not currently expect the Merger to occur prior to such
time. At the Effective Time of the Merger, all of the assets and liabilities of
United Cities will be transferred to and assumed by Atmos. After the Effective
Time, Atmos will operate United Cities' assets and business as an
unincorporated division of Atmos, and Atmos will be incorporated under the laws
of Texas and Virginia. See "The Reorganization Agreement and The Merger--
Effective Time; Effect of Merger" and "--Charter and Bylaws; Effect of Dual
Incorporation."
Atmos Dividends. Under the Reorganization Agreement, Atmos has agreed to
cause to be declared and paid for a period of not less than four quarters,
commencing with the first regularly scheduled meeting of the Board of Directors
of Atmos following the Merger, quarterly cash dividends at an annual rate of
not less than $1.02 per share, unless limited by applicable law or the
fiduciary duty of the Atmos directors as determined by Atmos and its counsel in
their sole discretion. This dividend is equal to the dividend paid by United
Cities immediately prior to execution of the Reorganization Agreement. The
indicated annual dividend of $1.02 per share will represent an annual increase
of $.06 per share over the annual dividend paid by Atmos during the fiscal year
ended September 30, 1996. See "The Reorganization Agreement and The Merger--
Atmos Dividends."
Conditions to the Merger. The obligations of Atmos and United Cities to
effect the Merger are subject to certain conditions, including, among other
things, receipt of regulatory approvals and consents of the state public
utility commissions having jurisdiction over the companies and, in the case of
United Cities, the Federal Energy Regulatory Commission. Such approvals and
consents must be received without conditions that in the reasonable judgment of
Atmos would result in a material adverse change to either party's business,
operations, properties, condition (financial or otherwise), assets or
liabilities. While the parties believe that they will receive the requisite
regulatory approvals and consents relating to the Merger and the issuance of
the Atmos Stock, there can be no assurance as to the timing of such approvals
and consents or as to the ability to obtain such approvals and consents on
satisfactory terms. See "The Reorganization Agreement and The Merger--
Regulatory Matters."
The expiration or early termination of the applicable waiting period under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), is required in order to consummate the Merger. See "The Reorganization
Agreement and The Merger--Regulatory Matters."
In addition to the regulatory approvals, the parties' respective obligations
to effect the Merger are subject to the ratification and approval of the
Reorganization Agreement and approval of the Plan of Merger and the Merger by
the requisite votes of the shareholders of Atmos and the shareholders of United
Cities. Other conditions to the parties' obligations include (a) registration
of the Atmos Stock issuable in the Merger under the Securities Act, (b) the
registration or exemption of such Atmos Stock under applicable state securities
laws, (c) the listing, upon official notice of issuance, on the NYSE of such
Atmos Stock, (d) the receipt of all material third party consents, (e) the
absence of material litigation, (f) receipt by Atmos of a written opinion from
Ernst & Young LLP ("Ernst & Young") stating that Ernst & Young concurs in the
accounting treatment of the Merger as a pooling of interests, (g) the absence
of material adverse changes in the business, operations, properties, condition
(financial or otherwise), assets or liabilities of the other party, (h) the
absence of any material undisclosed fact, error, misstatement or omission by
the other party, (i) receipt by Atmos and by United Cities of written opinions
from their respective tax counsels to the effect that, for federal income tax
purposes, the Merger will constitute a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as
amended (the "Code"), (j) the receipt of an opinion of counsel as to certain
matters from the other party's counsel, (k) the accuracy of the representations
and warranties of the other party in the Reorganization Agreement as of the
Closing Date, (l) the performance by the other party in all material respects
of its obligations under the Reorganization Agreement to be performed at or
prior to the Closing Date, (m) in the case of United
9
Cities, the execution by Atmos of employment contracts with three officers of
United Cities, (n) the holders of no more than 10% of the outstanding shares of
United Cities Stock having exercised their statutory dissenters' rights and (o)
the receipt by Atmos and United Cities of comfort letters from Ernst & Young
and Arthur Andersen LLP ("Arthur Andersen") regarding financial information
contained or incorporated by reference herein. See "The Reorganization
Agreement and The Merger--Conditions to the Merger," "--Interests of Certain
Persons in the Merger" and "--Woodward Marketing, L.L.C."
Other Proposals. The Reorganization Agreement provides that United Cities
will not, except as discussed below, initiate, solicit or encourage (including
by way of providing information or assistance), or take any other action to
facilitate, any inquiries concerning, or the making or implementation of, any
proposal relating to, or that might reasonably be expected to lead to, any
Competing Transaction (as defined herein under "The Reorganization Agreement
and The Merger--No-Solicitation Covenant, Fiduciary Duties, Termination Fee and
Expenses"). United Cities may, however, furnish information to any other person
that makes an unsolicited contact in connection with a bona fide Competing
Transaction, if such party executes a confidentiality agreement with United
Cities, and may enter into negotiations with such person and take and disclose
to shareholders of United Cities a position with respect to any such Competing
Transaction or the Merger, if the Board of Directors of United Cities
determines in good faith, based on, among other matters, the written advice of
independent legal counsel that such action is required of the Board of
Directors to comply with fiduciary duties to shareholders imposed by law and
United Cities keeps Atmos informed concerning the same. If the Reorganization
Agreement is terminated (a) by United Cities in the exercise of its fiduciary
duties in respect to a Competing Transaction, (b) by Atmos if the Board of
Directors of United Cities has taken a position recommending a Competing
Transaction or fails to recommend the Merger to the shareholders of United
Cities or (c) by Atmos because the United Cities shareholders approve a
Competing Transaction, then United Cities must pay Atmos a fee equal to
$15,000,000 within two business days after such termination. In addition, under
certain circumstances, each of the parties must pay the expenses of the other
party in connection with the transaction in the event of the termination of the
Reorganization Agreement. See "Background of the Merger" and "The
Reorganization Agreement and The Merger--No-Solicitation Covenant, Fiduciary
Duties, Termination Fee and Expenses."
Termination. Under certain conditions, the Reorganization Agreement may be
terminated at any time prior to the Merger becoming effective, whether prior to
or after approval by the shareholders of Atmos or United Cities. The conditions
under which the Reorganization Agreement may be terminated include termination
(a) by mutual consent of the Boards of Directors of Atmos and United Cities,
(b) by either party if the Merger has not been consummated on or before March
31, 1997, or such later date as may be agreed to by both parties (unless caused
by the willful failure of the terminating party to fulfill a material
obligation under the Reorganization Agreement), (c) by Atmos if the Board of
Directors of United Cities has taken a position recommending a Competing
Transaction or whereby it fails to recommend the Merger, (d) by either party if
a court or regulatory agency has prohibited the transaction in a final, non-
appealable order (if the terminating party has used all reasonable efforts to
remove such prohibition), (e) by either party if the shareholders of the other
party have failed to approve the Merger at their respective meetings, (f) by
either party if there is a material breach by the other party of its
representations, warranties or covenants that is not cured after 20 days
written notice or (g) by United Cities in the exercise of United Cities' Board
of Directors' fiduciary duties with respect to a Competing Transaction. See
"The Reorganization Agreement and The Merger--Amendment, Termination and
Waiver" and "--Interests of Certain Persons in the Merger."
Amendment; Waiver. The Reorganization Agreement may be amended by mutual
consent of Atmos and United Cities at any time prior to the Closing Date,
except that after shareholder approval no amendment may increase or decrease
the amount or change the type of consideration into which the United Cities
Stock will be converted in the Merger, alter any terms of the Plan of Merger if
such alteration would adversely affect the shares of any class or series of
United Cities, or alter any term of the articles of incorporation of United
Cities. In addition, the parties may waive compliance with any of the covenants
and conditions in the Reorganization Agreement and inaccuracies in
representations and warranties. See "The Reorganization Agreement and The
Merger--Amendment, Termination and Waiver."
10
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
Atmos. The Board of Directors of Atmos has approved the Reorganization
Agreement, the Plan of Merger and the Merger and determined that the Merger is
fair to, and in the best interests of, Atmos and the shareholders of Atmos. The
Board of Directors has also approved the issuance of the shares of Atmos Stock
to be issued in the Merger, believes the adoption of the United Cities Stock
Plan as provided in the Reorganization Agreement and Plan of Merger is
appropriate, has approved the four United Cities directors nominated to become
directors of Atmos at the Effective Time and has approved the amendments to
Atmos' Restated Articles of Incorporation to be effected by the Plan of Merger,
as described herein. THE ATMOS BOARD UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS OF ATMOS VOTE FOR APPROVAL OF THE PROPOSAL TO RATIFY AND APPROVE
THE REORGANIZATION AGREEMENT AND APPROVE THE PLAN OF MERGER AND THE MERGER. See
"Background of the Merger--Reasons for the Merger; Recommendations of the
Boards of Directors."
United Cities. The Board of Directors of United Cities has approved the
Reorganization Agreement, the Plan of Merger and the Merger and determined that
the Merger is fair to, and in the best interests of, United Cities and the
shareholders of United Cities. THE UNITED CITIES BOARD UNANIMOUSLY RECOMMENDS
THAT THE SHAREHOLDERS OF UNITED CITIES VOTE FOR APPROVAL OF THE PROPOSAL TO
RATIFY AND APPROVE THE REORGANIZATION AGREEMENT AND APPROVE THE PLAN OF MERGER
AND THE MERGER. See "Background of the Merger--Reasons for the Merger;
Recommendations of the Boards of Directors."
REASONS FOR THE MERGER
United Cities and Atmos believe that the Merger offers strategic and
financial benefits to each company and to their respective shareholders, as
well as to their employees and customers and the communities in which they do
business, including the following: (i) the surviving company will be more
effective in meeting the challenges of the increasingly competitive environment
in the utility industry than either United Cities or Atmos standing alone; (ii)
the combined service territories of United Cities and Atmos will be larger and
more diverse than either of the service territories of United Cities or Atmos;
(iii) the combined company will have a well-balanced mix of income from
regulated versus non-regulated businesses; and (iv) the surviving entity,
because of its larger size and other factors, will be able to take advantage of
certain opportunities resulting from the combination. See "Background of the
Merger--Reasons for the Merger; Recommendations of the Boards of Directors."
Atmos. The Atmos Board of Directors believes that the terms of the
Reorganization Agreement, the Plan of Merger and the Merger are fair to, and in
the best interests of, Atmos and its shareholders. Accordingly, the Atmos Board
has unanimously approved the Reorganization Agreement, the Plan of Merger and
the Merger. In addition to the joint benefits described above, the Board of
Directors of Atmos believes that the Merger is consistent with Atmos'
continuing long-term corporate development strategy of increasing the value of
Atmos through external growth and that the Merger will create a stronger
company from both a financial and operational viewpoint. Over the long-term,
this combination is expected to add stability and predictability to earnings
and cash flow. United Cities is recognized as a financially sound and well-
managed company and is well regarded in the industry, and the Board of
Directors of Atmos believes that the Merger represents a logical and natural
extension of Atmos' business. The Board believes that the Merger is consistent
with Atmos' long-term goals of expanding its customer base and diversifying the
weather patterns, local economic conditions and regulatory environments to
which its operations are subject. See "Background of the Merger--Reasons for
the Merger; Recommendations of the Board of Directors."
United Cities. The United Cities Board has unanimously approved the
Reorganization Agreement and the Plan of Merger and has determined that the
Merger is fair to, and in the best interests of, United Cities and United
Cities' shareholders. The United Cities Board believes that the Merger affords
United Cities' shareholders the opportunity to realize significant value on
their investment and also gives them the option of participating in
11
opportunities for growth that the United Cities Board believes the Merger makes
possible. In addition to the joint benefits described above, the United Cities
Board took into account the fact that Atmos has agreed to increase its
indicated annual dividend so that it is equal to United Cities' annual dividend
of $1.02 per share (subject to certain qualifications) for a period of not less
than four quarters following the consummation of the Merger. In reaching its
determination that the Reorganization Agreement is fair to, and in the best
interests of, United Cities and United Cities' shareholders, the United Cities
Board considered a number of factors, from both a short-term and a long-term
perspective, in addition to the ones described above. See "Background of the
Merger--Reasons for the Merger; Recommendations of the Boards of Directors."
For a description of the background of the Merger, see "Background of the
Merger."
OPINIONS OF FINANCIAL ADVISORS
The Board of Directors of Atmos has received the written opinion of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Atmos' financial
advisor in connection with the Merger, that, as of the date of this Joint Proxy
Statement/Prospectus, the Exchange Ratio is fair to Atmos from a financial
point of view. For information on the assumptions made, matters considered and
limits of the reviews by Merrill Lynch, see "Background of the Merger--Opinion
of Atmos' Financial Advisor." Holders of Atmos Stock are urged to read
carefully and in its entirety the opinion of Merrill Lynch, a copy of which
appears as Exhibit B to this Joint Proxy Statement/Prospectus.
The Board of Directors of United Cities has received the written opinion of
PaineWebber Incorporated ("PaineWebber"), United Cities' financial advisor in
connection with the Merger, that, as of the date of this Joint Proxy
Statement/Prospectus, the Exchange Ratio is fair to United Cities' shareholders
from a financial point of view. For information on the assumptions made,
matters considered and limits of the reviews by PaineWebber, see "Background of
the Merger--Opinion of United Cities' Financial Advisor." Holders of United
Cities Stock are urged to read carefully and in its entirety the opinion of
PaineWebber, a copy of which appears as Exhibit C to this Joint Proxy
Statement/Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
No ruling has been (or will be) sought from the Internal Revenue Service as
to the anticipated federal income tax consequences of the Merger. It is a
condition precedent to the consummation of the Merger that Atmos receive the
opinion of its counsel, Locke Purnell Rain Harrell (A Professional
Corporation), and United Cities receive the opinion of its counsel, Chapman and
Cutler, each to the effect that, based on certain facts, representations and
assumptions, the Merger will qualify as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code. Assuming such qualification,
neither Atmos nor United Cities will recognize any gain or loss as a result of
the Merger, no gain or loss will be recognized by shareholders of Atmos as a
result of the Merger and holders of United Cities Stock who exchange their
United Cities Stock for Atmos Stock will not recognize any gain or loss in the
Merger (except with respect to cash received in lieu of a fractional interest
in Atmos Stock). United Cities shareholders who dissent from the Merger in
accordance with statutory requirements and receive cash for the value of their
United Cities Stock will be treated as having received such cash as a
distribution from United Cities in redemption of such stock, subject to the
provisions and limitations of Section 302 of the Code. To the extent a cash
payment to a dissenting shareholder represents interest due from the Effective
Time, such payment will constitute income to the dissenting shareholder within
the meaning of Section 61 of the Code. See "The Reorganization Agreement and
The Merger--Federal Income Tax Consequences" and "--Dissenters' Rights."
12
THE OPINIONS THAT THE MERGER CONSTITUTES A TAX-FREE REORGANIZATION WILL BE
BASED UPON CERTAIN ASSUMPTIONS AS WELL AS UPON REPRESENTATIONS RECEIVED FROM
ATMOS AND UNITED CITIES. NO RULINGS HAVE BEEN OR WILL BE REQUESTED FROM THE
INTERNAL REVENUE SERVICE WITH RESPECT TO ANY TAX MATTERS. SHAREHOLDERS OF ATMOS
AND UNITED CITIES SHOULD READ CAREFULLY THE DISCUSSION UNDER THE CAPTION "THE
REORGANIZATION AGREEMENT AND THE MERGER--FEDERAL INCOME TAX CONSEQUENCES" AND
ARE URGED TO CONSULT THEIR OWN ADVISORS AS TO SPECIFIC CONSEQUENCES TO THEM OF
THE MERGER UNDER FEDERAL, STATE, LOCAL, FOREIGN OR ANY OTHER APPLICABLE TAX
LAWS.
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that Atmos receive the
written opinion of its independent accountants stating that they concur in the
accounting treatment of the Merger as a pooling of interests. The pooling of
interests method of accounting assumes that the combining companies have been
merged from inception and the historical financial statements for periods prior
to consummation of the Merger are restated as though the companies had been
combined from inception. While Atmos and United Cities intend to conduct their
respective businesses and pursue the consummation of the Merger in a manner
that will satisfy the conditions for pooling of interests accounting, there can
be no assurance that circumstances or events beyond the control of Atmos or
United Cities will not prevent the application of such accounting treatment.
See "The Reorganization Agreement and The Merger--Accounting Treatment."
MANAGEMENT FOLLOWING THE MERGER
At the Effective Time, the number of directors of Atmos will be set by the
Plan of Merger at 15. The directors of Atmos after the Effective Time will,
under the Plan of Merger, be the 11 directors of Atmos in office at the
Effective Time (who will continue to serve in the classes and for the terms in
which they are serving at the Effective Time) and four of the current directors
of United Cities: Mr. Gene C. Koonce (who will be elected to a term expiring in
1999), Mr. Vincent J. Lewis (who will be elected to a term expiring in 1999),
Mr. Thomas J. Garland (who will be elected to a term expiring in 1998) and Mr.
Richard W. Cardin (who will be elected to a term expiring in 1997, if the
Merger is consummated prior to the annual meeting of shareholders of Atmos
scheduled to be held on February 12, 1997, and if not, to a term expiring in
2000). Accordingly, a vote by Atmos' shareholders to ratify and approve the
Reorganization Agreement and approve the Plan of Merger and the Merger will
also result in the election of Messrs. Koonce, Lewis, Garland and Cardin as
directors of Atmos (the "United Cities Designees"). After the Merger, the
officers of Atmos will be the officers of Atmos immediately prior to the
consummation of the Merger as well as three officers of United Cities. See "The
Reorganization Agreement and The Merger--Directors and Officers," "--Election
of Directors" and "Management of Atmos Following the Merger."
13
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Reorganization Agreement and the Plan of Merger contemplate that certain
employees and members of the management and the Boards of Directors of Atmos
and United Cities will be entitled to receive the benefits described below.
United Cities Personnel.
Retention of United Cities Employees; Employee Plans. At the Effective Time,
all United Cities Employees (as defined herein under "The Reorganization
Agreement and The Merger--Interests of Certain Persons in the Merger") will
become employees of Atmos, and Atmos has agreed to retain all of such
employees, and to continue in effect all of the United Cities employee benefit
plans and arrangements, for one year, subject to certain exceptions and subject
to the rights and obligations set forth in any collective bargaining agreement
or the National Labor Relations Act. Atmos will become the successor plan
sponsor under the United Cities Qualified Retirement Plan and expects to make
ongoing contributions to such plan in the amounts necessary to satisfy the
minimum funding requirements for such plan.
Executive Employment Agreements. Atmos has agreed to enter into employment
agreements with Messrs. Gene C. Koonce, James B. Ford and Thomas R. Blose, Jr.,
the Chairman of the Board, President and Chief Executive Officer, the Senior
Vice President and Treasurer, and the Senior Vice President--Operations and
Engineering, respectively, of United Cities, upon the consummation of the
Merger. Mr. Koonce will become an officer of Atmos and the Vice Chairman of the
Atmos Board of Directors for a term of six months following the Effective Time,
and each of Messrs. Ford and Blose will become officers of Atmos.
Supplemental Executive Retirement Plan. United Cities maintains the
Supplemental Executive Retirement Plan (the "SERP") for the benefit of certain
management and key employees. It is a condition to the consummation of the
Merger that United Cities shall have terminated the SERP and obtained waivers
and releases from all active participants therein (excluding Mr. Koonce).
United Cities will make certain payments, not to exceed $5,100,000 in the
aggregate, to the active participants (excluding Mr. Koonce) who waive their
rights under the SERP.
Indemnification and Insurance for United Cities' Directors and
Officers. Under the Reorganization Agreement, Atmos agreed that, with respect
to matters occurring prior to the Effective Time, all rights to indemnification
and advancement of expenses existing in favor of the present or former
directors, officers, employees, fiduciaries and agents of United Cities as
provided in United Cities' Articles of Incorporation or Bylaws as in effect as
of the date of the Reorganization Agreement will survive the Merger and will
continue in full force and effect for periods not less than those provided by
the statutes of limitations applicable to such matters. The Reorganization
Agreement also contemplates that, with respect to matters occurring prior to
the Effective Time, the United Cities directors and officers would continue to
have coverage under a policy of directors' and officers' liability insurance
for a period of five years after the Effective Time. Atmos' existing insurance
policy will cover the United Cities directors and officers who become directors
or officers of Atmos as to matters occurring after the Effective Time and a
supplemental policy will be obtained covering all of the United Cities
directors and officers for matters involving United Cities occurring prior to
the Effective Time.
United Cities Stock Plan. The United Cities Stock Plan will be continued and
benefits granted thereunder will be exercisable for or based on the value of
Atmos Stock following the Merger. See "The Reorganization Agreement and The
Merger--Interests of Certain Persons in the Merger" and "United Cities Stock
Plan."
Atmos Personnel.
Severance Agreements. Atmos has severance agreements with seven of its
executive officers that require Atmos to take certain actions for the benefit
of such officers in the event there occurs a "potential change in control" of
Atmos and to make severance payments to such officers if their employment with
Atmos is terminated in certain circumstances within three years following a
"change in control" of Atmos. Under all but one of these severance agreements,
the execution of the Reorganization Agreement by Atmos and United Cities
14
constituted a "potential change in control" of Atmos and approval of the Merger
by the Atmos shareholders will constitute a "change in control" of Atmos. A
"change in control" is deemed to occur under these provisions and under the
Atmos SEBP, SBP and Restricted Stock Grant Plan (described below) because the
present Atmos shareholders will not own at least 60% of the outstanding Atmos
Stock following the Merger. The severance agreement of Mr. Robert F. Stephens,
President and Chief Operating Officer of Atmos (under which the "change in
control" provisions would be satisfied as described above), further provides
that he is entitled to receive full severance benefits if he resigns for any
reason within 180 days following a "change in control."
Supplemental Executive Benefits Plan and Supplemental Benefits Plan for Key
Management Employees. All of Atmos' officers participate in Atmos' Supplemental
Executive Benefits Plan (the "SEBP") and the presidents of each of Atmos' four
operating divisions participate in Atmos' Supplemental Benefits Plan for Key
Management Employees (the "SBP"). The SEBP and the SBP provide for the payment
of death, supplemental disability and/or supplemental retirement benefits if a
participant meets certain length of service and other requirements. The
approval of the Merger by the Atmos shareholders will constitute a "change in
control" under the SEBP and the SBP, and if a participant's employment is
terminated in certain circumstances following a "change in control," then such
participant's right to a supplemental pension vests immediately, regardless of
whether he or she has satisfied the length of service or other criteria for
vesting.
Restricted Stock Grant Plan. All of Atmos' officers and division presidents,
and one retired officer, have been awarded shares of restricted stock pursuant
to Atmos' Restricted Stock Grant Plan, which are subject to transfer
restrictions. The approval of the Merger by Atmos shareholders will constitute
a "change in control" under the Restricted Stock Grant Plan, and at such time
the transfer restrictions on all of such shares will lapse.
See "The Reorganization Agreement and the Merger--Interests of Certain
Persons in the Merger."
SHAREHOLDER RIGHTS
The rights of United Cities' shareholders are currently governed by Illinois
and Virginia law and by United Cities' Articles of Incorporation and Bylaws.
The rights of Atmos' shareholders are currently governed by Texas law and by
Atmos' Restated Articles of Incorporation and Bylaws. Upon the Merger becoming
effective, United Cities' shareholders will become, and Atmos' shareholders
will remain, shareholders of Atmos, and Atmos will become a corporation
incorporated in Texas and Virginia and be subject to the corporation laws of
each such state. The rights of Atmos' shareholders after the Merger will be
governed by Texas and Virginia law and by Atmos' Restated Articles of
Incorporation (which will be amended in certain respects to conform to Virginia
law) and Bylaws. In general, where differences between Texas and Virginia
corporate law exist, shareholders will be entitled to the benefit of the
provision most favorable to them, and, in the case of corporate action
requiring a shareholder vote, the corporation laws of the state with the higher
voting requirement will govern. For a summary of the significant differences
between the rights of Atmos' shareholders and United Cities' shareholders, see
"Comparison of Shareholder Rights."
RIGHTS OF DISSENTING SHAREHOLDERS
Atmos Shareholders. Holders of Atmos Stock will not have dissenters' rights
of appraisal with respect to the Merger under the Texas Business Corporation
Act ("TBCA").
United Cities Shareholders. Any shareholder of United Cities who objects to
the Merger and who follows the procedures prescribed by Sections 11.65 and
11.70 of the Illinois Business Corporation Act of 1983 ("IBCA") is entitled, in
lieu of receiving shares of Atmos Stock as a result of the Merger, to receive
cash equal to the "fair value" of such shareholder's shares. See "The
Reorganization Agreement and The Merger--Dissenters' Rights" for a further
discussion of dissenters' rights and Exhibit D attached to this Joint Proxy
Statement/Prospectus for a copy of the text of Sections 11.65 and 11.70 of the
IBCA. Holders of United Cities Stock will not have dissenters' rights of
appraisal with respect to the Merger under the Virginia Stock Corporation Act
("VSCA").
15
STANDSTILL AGREEMENT
Atmos and United Cities have entered into a Standstill Agreement (the
"Standstill Agreement") which, among other matters, until July 13, 1998,
restricts the parties from acquiring each others' securities except in certain
limited circumstances. In addition, neither party may solicit proxies or
consents or become a participant in a solicitation of proxies or consents with
respect to the securities of the other party or take certain other actions to
acquire control of the other party. See "The Reorganization Agreement and The
Merger--Standstill Agreement."
COMPARATIVE MARKET PRICES AND DIVIDENDS
Atmos Stock trades on the NYSE under the trading symbol "ATO." United Cities
Stock trades on The Nasdaq National Market under the trading symbol "UCIT." The
following table sets forth, for the periods indicated, the high and low closing
sales prices of Atmos Stock, as reported on the NYSE Composite Tape, the high
and low closing sales prices of United Cities Stock, as reported by The Nasdaq
National Market, and dividends declared on the Atmos Stock and the United
Cities Stock.
ATMOS COMMON STOCK UNITED CITIES COMMON STOCK
----------------------- --------------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------ ------ --------- --------- --------- ------------
Calendar 1994
First Quarter......... $20.00 $17.75 $.22 $ 18.75 $ 16.00 $ .250
Second Quarter........ 20.25 18.00 .22 17.25 15.50 .250
Third Quarter......... 19.00 16.38 .22 17.75 15.50 .250
Fourth Quarter........ 18.00 15.88 .23 17.25 15.44 .255
Calender 1995
First Quarter......... 18.50 16.13 .23 16.25 15.25 .255
Second Quarter........ 20.25 17.50 .23 16.25 14.50 .255
Third Quarter......... 20.63 19.00 .23 16.50 14.75 .255
Fourth Quarter........ 23.00 18.00 .24 18.75 15.75 .255
Calender 1996
First Quarter......... 23.00 22.00 .24 18.50 15.75 .255
Second Quarter........ 31.00 22.75 .24 17.00 14.75 .255
Third Quarter......... 29.38 21.00 .24 23.00 15.00 .255
Fourth Quarter
(through October 2,
1996)................ 23.63 22.38 -- 22.75 22.38 --
As indicated above, Atmos has agreed to increase its dividend to an annual
rate of $1.02 per share for a minimum period of four quarters following the
Effective Time, subject to requirements of law and the fiduciary duties of
Atmos' directors. See "The Reorganization Agreement and The Merger--
Representations, Warranties and Covenants."
On July 19, 1996, the last full trading day prior to the public announcement
of the Merger, the closing sales price of Atmos Stock was $25.88 per share, as
reported on the NYSE Composite Tape, and the closing sales price of United
Cities Stock was $17.00 per share, as reported by The Nasdaq National Market.
The closing sales prices of Atmos Stock and United Cities Stock on October 2,
1996, the most recent practicable date prior to the printing of this Joint
Proxy Statement/Prospectus, were $23.38 per share, as reported on the NYSE
Composite Tape, and $22.75 per share, as reported by The Nasdaq National
Market, respectively. Shareholders are urged to obtain current market
quotations.
16
SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
ATMOS SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information presented below has been
derived from the audited consolidated financial statements of Atmos for the
five fiscal years ended September 30, 1995. The historical information is not
necessarily indicative of results to be expected after the Merger is
consummated and should be read in conjunction with the separate consolidated
financial statements and notes thereto of Atmos incorporated by reference
herein.
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating revenues.............. $399,667 $403,353 $459,641 $499,808 $435,820
Operating income................ $ 22,605 $ 23,569 $ 30,277 $ 26,466 $ 32,377
Net income...................... $ 9,612 $ 10,998 $ 17,544 $ 14,679 $ 18,873
Average shares outstanding...... 13,486 13,789 14,338 15,195 15,416
PER SHARE DATA
Net income per share............ $ 0.71 $ 0.80 $ 1.22 $ 0.97 $ 1.22
Dividends per share............. $ 0.80 $ 0.83 $ 0.85 $ 0.88 $ 0.92
SEPTEMBER 30,
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
Net property, plant and equip-
ment........................... $259,187 $276,924 $299,275 $327,407 $363,252
Total assets.................... $338,714 $358,363 $391,618 $416,678 $445,783
CAPITALIZATION
Shareholders' equity............ $110,958 $117,248 $139,429 $149,556 $158,278
Long-term debt, excluding cur-
rent maturities................ $116,461 $112,153 $105,853 $138,303 $131,303
-------- -------- -------- -------- --------
Total capitalization............ $227,419 $229,401 $245,282 $287,859 $289,581
======== ======== ======== ======== ========
Book value per share at end of
period......................... $ 8.12 $ 8.39 $ 9.38 $ 9.78 $ 10.20
17
ATMOS SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information presented below for the nine
month and twelve month periods ended June 30, 1995 and 1996, respectively, has
been derived from Atmos' unaudited financial statements and includes, in the
opinion of Atmos' management, all adjustments necessary to present fairly the
information for such periods. Such adjustments consisted only of normal
recurring accruals. The historical information is not necessarily indicative of
results to be expected after the Merger is consummated and should be read in
conjunction with the separate consolidated financial statements and notes
thereto of Atmos incorporated by reference herein. Because of seasonal and
other factors, the results of operations for the nine month period ended June
30, 1996 is not indicative of expected results of operations for the year
ending September 30, 1996.
NINE MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------------
(UNAUDITED) (UNAUDITED)
1995 1996 1995 1996
--------- --------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating revenues.................. $ 359,827 $ 415,143 $ 437,177 $ 491,136
Operating income.................... $ 30,462 $ 39,176 $ 28,848 $ 41,091
Net income.......................... $ 20,503 $ 27,932 $ 16,076 $ 26,302
Average shares outstanding.......... 15,386 15,855 15,358 15,767
PER SHARE DATA
Net income per share................ $ 1.33 $ 1.76 $ 1.05 $ 1.67
Dividends per share................. $ 0.69 $ 0.72 $ 0.91 $ 0.95
JUNE 30,
---------------------
(UNAUDITED)
1995 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
BALANCE SHEET DATA
Net property, plant and equipment...................... $ 351,452 $ 398,695
Total assets........................................... $ 424,193 $ 488,285
CAPITALIZATION
Shareholders' equity................................... $ 162,600 $ 179,056
Long-term debt, excluding current maturities........... $ 131,303 $ 125,303
---------- ----------
Total capitalization................................... $ 293,903 $ 304,359
========== ==========
Book value per share at end of period.................. $ 10.50 $ 11.20
18
UNITED CITIES SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information presented below has been
derived from the audited consolidated financial statements of United Cities for
the five fiscal years ended December 31, 1995. This historical information is
not necessarily indicative of results to be expected after the Merger is
consummated and should be read in conjunction with the separate consolidated
financial statements and notes thereto of United Cities incorporated by
reference herein.
YEAR ENDED DECEMBER 31,
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating revenues.............. $272,598 $305,615 $335,253 $326,495 $313,736
Operating income................ $ 22,223 $ 23,412 $ 28,191 $ 27,436 $ 23,406
Common stock earnings........... $ 7,741 $ 10,104 $ 12,120 $ 12,093 $ 9,935
Average shares outstanding...... 8,000 9,459 10,197 10,409 11,792
PER SHARE DATA
Common stock earnings per
share.......................... $ 0.97 $ 1.07 $ 1.19 $ 1.16 $ 0.84
Dividends per share............. $ 0.93 $ 0.97 $ 0.99 $ 1.01 $ 1.02
DECEMBER 31,
--------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
BALANCE SHEET DATA
Net property, plant, and equip-
ment........................... $264,024 $276,651 $294,588 $312,356 $335,012
Total assets.................... $368,283 $370,150 $401,520 $421,200 $460,377
CAPITALIZATION
Common shareholders' equity..... $ 85,953 $106,206 $111,888 $118,028 $146,071
Long-term debt, excluding cur-
rent maturities................ $127,430 $157,734 $151,843 $144,344 $163,160
Preferred and Preference Stock.. $ 1,352 -- -- -- --
-------- -------- -------- -------- --------
Total capitalization............ $214,735 $263,940 $263,731 $262,372 $309,231
======== ======== ======== ======== ========
Book value per share at end of
period......................... $ 10.09 $ 10.57 $ 10.85 $ 11.12 $ 11.48
19
UNITED CITIES SELECTED HISTORICAL FINANCIAL INFORMATION
The selected historical financial information presented below for the six
month and twelve month periods ended June 30, 1995 and 1996, respectively, has
been derived from United Cities' unaudited financial statements and includes,
in the opinion of United Cities' management, all adjustments necessary to
present fairly the information for such periods. Such adjustments consisted
only of normal recurring accruals. The historical information is not
necessarily indicative of results to be expected after the Merger is
consummated and should be read in conjunction with the separate consolidated
financial statements and notes thereto of United Cities incorporated by
reference herein. Because of seasonal and other factors, the results of
operations for the six month period ended June 30, 1996 is not indicative of
expected results of operations for the year ending December 31, 1996.
SIX MONTHS ENDED TWELVE MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -----------------------
(UNAUDITED) (UNAUDITED)
1995 1996 1995 1996
--------- --------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating revenues.................. $ 168,107 $ 247,840 $ 297,576 $ 393,469
Operating income.................... $ 16,114 $ 20,511 $ 25,308 $ 27,802
Net income.......................... $ 9,365 $ 14,411 $ 10,542 $ 14,981
Average shares outstanding.......... 10,937 13,007 10,700 12,819
PER SHARE DATA
Net income per share................ $ 0.86 $ 1.11 $ 0.99 $ 1.17
Dividends per share................. $ 0.51 $ 0.51 $ 1.02 $ 1.02
JUNE 30,
---------------------
(UNAUDITED)
1995 1996
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
BALANCE SHEET DATA
Net property, plant and equipment...................... $ 324,448 $ 346,917
Total assets........................................... $ 407,205 $ 443,180
CAPITALIZATION
Common shareholders' equity............................ $ 149,345 $ 158,963
Long-term debt, excluding current maturities........... $ 137,637 $ 158,192
---------- ----------
Total capitalization................................... $ 286,982 $ 317,155
========== ==========
Book value per share at end of period.................. $ 11.90 $ 12.13
20
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following table sets forth certain unaudited pro forma financial
information for Atmos and United Cities on a pooling of interests basis. The
pooling of interests method of accounting assumes that the combining companies
were merged from inception and the historical financial statements for periods
prior to consummation of the Merger are restated as though the companies had
been combined from inception. This pro forma information is derived from the
unaudited pro forma combined condensed financial statements appearing elsewhere
herein and should be read in conjunction with those statements and the notes
thereto. The unaudited pro forma financial data is not necessarily indicative
of the operating results or financial position that would have been achieved
had the Merger been effective at the date or during the periods presented or
the results that may be obtained in the future. See "Unaudited Pro Forma
Combined Condensed Financial Statements." The pro forma combined condensed
statements of income for the nine month and twelve month periods ended June 30,
1996 include Atmos' and United Cities' results of operations for the periods
then ended. The pro forma combined condensed statements of income for the years
ended September 30, 1993, 1994, and 1995 include Atmos' results of operations
for its fiscal years then ended and United Cities' results of operations for
its fiscal years ended December 31, 1993, 1994, and 1995, respectively. As a
result, United Cities' results of operations for the three months ended
December 31, 1995 (operating revenue of $105,446,000 and net income of
$7,486,000) are included in the pro forma combined condensed statements of
income for the year ended September 30, 1995 and the nine month and twelve
month periods ended June 30, 1996.
YEAR ENDED SEPTEMBER 30,
-------------------------- NINE MONTHS ENDED TWELVE MONTHS ENDED
1993 1994 1995 JUNE 30, 1996 JUNE 30, 1996
-------- -------- -------- ----------------- -------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA
Operating revenues.... $794,894 $826,303 $749,556 $768,429 $884,605
Operating income...... $ 58,468 $ 53,902 $ 55,783 $ 70,637 $ 68,893
Net income............ $ 29,694 $ 26,772 $ 28,808 $ 49,829 $ 41,283
Average shares out-
standing............. 24,535 25,604 27,208 28,752 28,586
PER SHARE DATA
Net income per share.. $ 1.21 $ 1.05 $ 1.06 $ 1.73 $ 1.44
Dividends per share... $ 0.82 $ 0.91 $ 0.96 $ 0.74 $ 0.98
JUNE 30, 1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
BALANCE SHEET DATA
Net property, plant and equipment....................... $745,612
Total assets............................................ $930,442
CAPITALIZATION
Shareholders' equity.................................... $338,019
Long-term debt, excluding current maturities............ $283,495
--------
Total capitalization.................................... $621,514
========
Book value per share at end of period................... $ 11.62
21
PARTIES TO THE MERGER
BUSINESS OF ATMOS
Atmos was organized under the laws of the State of Texas in 1983 as a
subsidiary of Pioneer Corporation ("Pioneer") for the purposes of owning and
operating Pioneer's natural gas distribution business in Texas. Immediately
following the transfer of such business, which had been operated by Pioneer
and its predecessors since 1906, Pioneer distributed the outstanding stock of
Atmos, then known as Energas Company, to the Pioneer shareholders. In
September 1988, the name was changed from Energas Company to Atmos Energy
Corporation. Atmos' principal executive offices are located at 1800 Three
Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240, and its telephone
number is (972) 934-9227.
Atmos distributes and sells natural gas to approximately 673,000
residential, commercial, industrial, agricultural and other customers in over
400 cities, towns and communities in parts of Texas, Kentucky, Colorado,
Kansas, Missouri and Louisiana. Atmos also transports gas for others through
parts of its distribution system.
Atmos' Texas distribution system is operated through its Energas Company
division (the "Energas Division") and is located in the western part of Texas
covering an area having a population of approximately 950,000 people. The
principal cities served by the Energas Division include Amarillo, Lubbock,
Midland and Odessa.
Atmos' Kentucky distribution system is operated through its Western Kentucky
Gas Company division (the "Western Kentucky Division") and covers an area
having a population of approximately 680,000 people. The principal cities
served by the Western Kentucky Division include Bowling Green, Owensboro and
Paducah.
Atmos' Colorado, Kansas and Missouri distribution system is operated through
its Greeley Gas Company division (the "Greeley Gas Division"). It serves
customers in areas of Colorado, Kansas and Missouri having a combined
population of approximately 228,000 people. The principal cities served
include Greeley, Durango and Lamar, Colorado and Bonner Springs, Herington and
Ulysses, Kansas.
Atmos' Louisiana distribution system is operated through its Trans Louisiana
Gas Company division (the "Trans La Division") and covers an area having a
population of approximately 250,000 people. The principal cities served by the
Trans La Division are Lafayette, Pineville and Natchitoches.
Since its organization in 1983, Atmos has sought to expand its customer base
and to diversify the weather patterns, local economic conditions and
regulatory environments to which its operations are subject. As part of this
strategy, Atmos acquired Trans Louisiana Gas Company, Inc. in January 1986,
Western Kentucky Gas Utility Corporation in December 1987, Greeley Gas Company
of Denver, Colorado in December 1993 and Oceana Heights Gas Company of
Thibodaux, Louisiana in November 1995. Atmos continues to consider and pursue,
where appropriate, additional acquisitions or mergers of natural gas
distribution properties or companies and other business opportunities.
Additional information concerning Atmos' business, assets, management,
results of operations and other matters is included in Atmos' reports filed
under the Exchange Act that are incorporated by reference in this Joint Proxy
Statement/Prospectus, including Atmos' Annual Report on Form 10-K for its
fiscal year ended September 30, 1995. See "Incorporation of Certain
Information by Reference" and "The Reorganization Agreement and The Merger--
Directors and Officers."
22
BUSINESS OF UNITED CITIES
United Cities was incorporated under the laws of Illinois in 1929 and was
domesticated under the laws of Virginia in 1966. United Cities' principal
executive offices are located at 5300 Maryland Way, Brentwood, Tennessee
37027, and its telephone number is (615) 373-5310.
United Cities' predominant business is the distribution of natural gas.
United Cities supplies natural gas service to approximately 314,000 customers
in the states of Tennessee, Kansas, Georgia, Illinois, Virginia, Missouri,
Iowa and South Carolina. In addition to its natural gas distribution business,
United Cities sells and installs gas appliances and performs certain appliance
service work.
United Cities has two wholly-owned subsidiaries. One subsidiary, UCG Energy
Corporation ("UCG Energy"), is a broker procuring natural gas for United
Cities and certain of United Cities' industrial customers, local distribution
companies and others, and is engaged in exploration and production activities.
In addition, UCG Energy leases appliances, real estate, equipment and vehicles
to United Cities and others. UCG Energy also owns a 45% interest in Woodward
Marketing, L.L.C. which provides natural gas marketing services to industrial
customers, municipalities and local distribution companies, including United
Cities.
UCG Energy has two wholly-owned subsidiaries, United Cities Propane Gas of
Tennessee, Inc. and UCG Leasing, Inc. United Cities Propane Gas of Tennessee,
Inc. is engaged in the retail distribution of propane (LP) gas. The propane
operation serves approximately 26,000 customers in Tennessee, North Carolina
and Virginia. UCG Leasing, Inc. leases vehicles, equipment and real estate to
United Cities.
United Cities' other subsidiary, United Cities Gas Storage Company ("UCG
Storage"), was formed in 1989 to provide natural gas storage services. A
natural gas storage field in Kentucky supplements natural gas provided to
United Cities' customers in Tennessee. In addition, natural gas storage fields
located in Kansas and included in United Cities' 1989 acquisition of Union Gas
System, Inc. were sold to UCG Storage. These fields supplement natural gas
provided to United Cities' Kansas customers.
Additional information concerning United Cities' business, assets,
management, results of operations and other matters is included in United
Cities' reports filed under the Exchange Act that are incorporated by
reference in this Joint Proxy Statement/Prospectus, including United Cities'
Annual Report on Form 10-K for its fiscal year ended December 31, 1995. See
"Incorporation of Certain Information by Reference."
THE NATURAL GAS DISTRIBUTION INDUSTRY
The natural gas distribution industry is subject to a number of factors,
many of which affect Atmos and United Cities from time to time. These include:
(i) the ongoing need to obtain adequate and timely rate relief from regulatory
authorities to recover costs of service and earn a fair return on invested
capital; (ii) inherent seasonality of the business in local gas distribution
service areas; (iii) competition with alternative fuels; (iv) competition with
other gas sources for industrial customers, including the ability of some
customers to bypass Atmos' or United Cities' facilities; and (v) possible
volatility in the supply and price of natural gas.
23
GENERAL INFORMATION REGARDING
THE ATMOS SHAREHOLDERS MEETING
PLACE, TIME AND DATE OF ATMOS SHAREHOLDERS MEETING
The Atmos Shareholders Meeting will be held on Tuesday, November 12, 1996 at
the Doubletree Hotel at Lincoln Centre, 5410 LBJ Freeway, in Dallas, Texas
beginning at 11:00 a.m., Central time. This Joint Proxy Statement/Prospectus
is furnished in connection with the solicitation of proxies by the Board of
Directors of Atmos for use at the Atmos Shareholders Meeting and at any
adjournments or postponements thereof.
PURPOSE OF THE ATMOS SHAREHOLDERS MEETING
The purpose of the Atmos Shareholders Meeting is to consider and vote upon a
proposal to ratify and approve the Reorganization Agreement and approve the
Plan of Merger and the Merger. The Reorganization Agreement and the Plan of
Merger also provide for the issuance by Atmos of shares of Atmos Stock to the
shareholders of United Cities in connection with the Merger, the adoption of
the United Cities Stock Plan, the adoption of certain amendments to Atmos'
Restated Articles of Incorporation necessary to conform them to Virginia law
and the election of four current directors of United Cities as directors of
Atmos to take office at the Effective Time.
See "The Reorganization Agreement and The Merger--Directors and Officers,"
"--Charter and Bylaws; Effect of Dual Incorporation," "--Election of
Directors" and "--Interests of Certain Persons in the Merger."
THE BOARD OF DIRECTORS OF ATMOS RECOMMENDS A VOTE "FOR" THE PROPOSAL TO
RATIFY AND APPROVE THE REORGANIZATION AGREEMENT AND APPROVE THE PLAN OF MERGER
AND THE MERGER.
VOTE REQUIRED FOR APPROVAL; RECORD DATE
The affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of Atmos Stock entitled to vote at the Atmos Shareholders
Meeting is required for the approval of the proposal to ratify and approve the
Reorganization Agreement and approve the Plan of Merger and the Merger. Such
vote will be sufficient to satisfy (i) the requirements under Texas law and
Atmos' Restated Articles of Incorporation for approval of the Plan of Merger
and (ii) the requirements under Atmos' listing agreement with the NYSE for
approval of the issuance of shares of Atmos Stock in the Merger and adoption
of the United Cities Stock Plan, as described below. Abstentions and broker
non-votes will not be counted as votes "For" or "Against" the proposal and
therefore have the effect of votes "Against" the proposal. The presence at the
Atmos Shareholders Meeting, whether in person or by proxy, of the holders of a
majority of the outstanding shares of Atmos Stock entitled to vote constitutes
a quorum for the transaction of business. Abstentions and broker non-votes
will be counted as present for purposes of determining a quorum at the Atmos
Shareholders Meeting.
Atmos' listing agreement with the NYSE, among other things, generally
requires the approval of Atmos' shareholders as a prerequisite to the listing
on the NYSE of shares of Atmos Stock to be issued in a transaction or series
of related transactions if such shares have, or will have upon issuance,
voting power equal to or in excess of 20% of the voting power of Atmos before
such issuance or if the number of shares of Atmos Stock to be issued is or
will be equal to or in excess of 20% of the number of shares of Atmos Stock
outstanding before such issuance. The shares of Atmos Stock issuable in the
Merger represent more than 20% of the voting power and number of shares
currently outstanding. The NYSE also requires shareholder approval of the
adoption by Atmos of the United Cities Stock Plan because it will become an
employee plan pursuant to which Atmos Stock may be issued to officers or
directors.
The Atmos Board of Directors has fixed the close of business on October 9,
1996 as the record date for the determination of the Atmos shareholders
entitled to receive notice of, and to vote at, the Atmos Shareholders Meeting.
Only holders of record of Atmos Stock at the close of business on that date
will be entitled to notice
24
of, and to vote at, the Atmos Shareholders Meeting or any adjournments or
postponements thereof. As of October 9, 1996, 16,029,581 shares of Atmos Stock
were issued and outstanding. These shares constitute the only class of stock
of Atmos issued and outstanding. Each share is entitled to one vote.
The following table lists the beneficial ownership, as of October 9, 1996,
of shares of Atmos Stock by each of the Atmos directors and executive
officers, all directors and executive officers as a group and by each person
known to Atmos to be a beneficial owner of more than 5% of the outstanding
shares of Atmos Stock:
AMOUNT OF ATMOS PERCENTAGE OF
STOCK OUTSTANDING
NAME BENEFICIALLY OWNED ATMOS STOCK
---- ------------------ -------------
Travis W. Bain II....................... 1,087 (a)
Glen A. Blanscet........................ 9,029(b)(c) (a)
Dan Busbee.............................. 3,071 (a)
J. Charles Goodman...................... 9,225(b)(c) (a)
H.F. Harber............................. 18,281(b)(c) (a)
Don E. James............................ 15,137(b)(c) (a)
Mary S. Lovell.......................... 14,548(b)(c) (a)
Thomas C. Meredith...................... 85 (a)
Phillip E. Nichol....................... 4,500 (a)
John W. Norris, Jr...................... 725 (a)
James F. Purser......................... 24,392(b)(c) (a)
Carl S. Quinn........................... 10,853 (a)
Lee E. Schlessman(d).................... 1,019,534 6.4%
Robert F. Stephens...................... 52,773(b)(c) (a)
Charles K. Vaughan...................... 110,774(b) (a)
Richard Ware II......................... 13,897 (a)
All directors and executive officers as
a group
(16 persons)........................... 1,307,911(e)(c) 8.2%
Employee Stock Ownership Plan and Trust
for Employees of Atmos Energy
Corporation(f)......................... 1,914,296 11.9%
- --------
(a) The percentage of shares beneficially owned by such individual does not
exceed 1% of the outstanding Atmos Stock.
(b) Includes shares granted pursuant to Atmos' Restricted Stock Grant Plan on
which the restrictions have not lapsed, the numbers of which, as of
October 9, 1996, are as follows: Glen A. Blanscet, 4,000 shares; J.
Charles Goodman, 4,600 shares; H. F. Harber, 8,000 shares; Don E. James,
150 shares; Mary S. Lovell, 3,749 shares; James F. Purser, 17,813 shares;
Robert F. Stephens, 22,475 shares; and Charles K. Vaughan, 38,250 shares.
Such restrictions will lapse upon approval of the Merger by the Atmos
shareholders. See "The Reorganization Agreement and The Merger--Interests
of Certain Persons in the Merger."
(c) Also includes shares of Atmos Stock held in the executive officers' ESOP
accounts.
(d) Mr. Schlessman's shares are held in an irrevocable trust of which Mr.
Schlessman is the trustee and beneficiary.
(e) Includes a total of 99,037 shares granted pursuant to Atmos' Restricted
Stock Grant Plan on which the restrictions have not lapsed. Such
restrictions will lapse upon approval of the Merger by the Atmos
shareholders. See "The Reorganization Agreement and The Merger--Interests
of Certain Persons in the Merger."
(f) The Employee Stock Ownership Plan and Trust for Employees of Atmos Energy
Corporation (the "ESOP") permits Atmos employees who participate in the
ESOP to exercise voting power with respect to shares of Atmos Stock held
in their ESOP accounts. For Atmos Shares owned by the ESOP with respect to
which participating employees do not exercise such voting rights, the ESOP
Trust Committee, which is a committee whose current members are Atmos
officers, is entitled to vote such shares in its discretion.
25
The directors and executive officers of Atmos have stated that they intend
to vote all shares of Atmos Stock over which they exercise voting control in
favor of the proposal to ratify and approve the Reorganization Agreement and
approve the Plan of Merger and the Merger.
SOLICITATION AND REVOCABILITY OF PROXIES
Atmos expects to solicit proxies primarily by mail, but directors, officers,
employees and agents of Atmos may also solicit proxies in person or by
telephone or other electronic means. The cost of preparing, assembling and
mailing the proxies and accompanying materials for the Atmos Shareholders
Meeting, including the cost of reimbursing brokers and nominees for forwarding
proxies and proxy statements to their principals, will be paid by Atmos. In
addition, Morrow & Co., Inc. ("Morrow") will assist Atmos in the solicitation
of proxies. It is estimated that Atmos will pay approximately $5,000 in fees,
plus expenses and disbursements, to Morrow for Morrow's proxy solicitation
services.
Shares of Atmos Stock represented by properly executed proxies received
prior to or at the Atmos Shareholders Meeting, unless such proxies have been
revoked, will be voted in accordance with the instructions indicated in the
proxies. If no instructions are indicated on an executed form of proxy, the
shares covered by such proxy will be voted "For" the proposal to ratify and
approve the Reorganization Agreement and approve the Plan of Merger and the
Merger.
It is not expected that any matters other than those referred to herein will
be brought before the Atmos Shareholders Meeting. However, if any other
matters are properly presented at the Atmos Shareholders Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
form of proxy and acting thereunder will have discretion to vote the shares of
Atmos Stock covered by validly executed proxies in accordance with their best
judgment. As of the date hereof, the Atmos Board of Directors knows of no such
other matters.
Any proxy given pursuant to this solicitation or otherwise may be revoked by
the person giving such proxy by delivery, at any time prior to the time the
shares are voted, of written notice of revocation bearing a later date than
the proxy or a later dated proxy relating to the same shares of Atmos Stock to
the Corporate Secretary of Atmos or by attending the Atmos Shareholders
Meeting and voting in person. Attendance at the Atmos Shareholders Meeting
will not in itself constitute the revocation of a proxy.
ATMOS SHAREHOLDERS ARE REQUESTED TO PROMPTLY SIGN, DATE AND RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID, PRE-ADDRESSED ENVELOPE.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE MEETING
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST RATIFICATION AND APPROVAL OF THE
REORGANIZATION AGREEMENT AND APPROVAL OF THE PLAN OF MERGER AND THE MERGER.
26
GENERAL INFORMATION REGARDING
THE UNITED CITIES SHAREHOLDERS MEETING
PLACE, TIME AND DATE OF UNITED CITIES SHAREHOLDERS MEETING
The United Cities Shareholders Meeting will be held on Tuesday, November 12,
1996 at the Fifth Floor Auditorium of the First American Center, 326 Union
Street, Nashville, Tennessee beginning at 10:30 a.m., Central time. This Joint
Proxy Statement/Prospectus is being furnished in connection with the
solicitation of proxies by the Board of Directors of United Cities for use at
the United Cities Shareholders Meeting and at any adjournments or
postponements thereof.
PURPOSE OF THE UNITED CITIES SHAREHOLDERS MEETING
The purpose of the United Cities Shareholders Meeting is to consider and
vote upon a proposal to ratify and approve the Reorganization Agreement and
approve the Plan of Merger and the Merger.
THE BOARD OF DIRECTORS OF UNITED CITIES RECOMMENDS A VOTE "FOR" THE PROPOSAL
TO RATIFY AND APPROVE THE REORGANIZATION AGREEMENT AND APPROVE THE PLAN OF
MERGER AND THE MERGER.
VOTE REQUIRED FOR APPROVAL; RECORD DATE
The affirmative vote of the holders of a majority of the outstanding shares
of United Cities Stock entitled to vote thereon is required for the approval
of the proposal to ratify and approve the Reorganization Agreement and approve
the Plan of Merger and the Merger. Abstentions and broker non-votes will not
be counted as votes "For" or "Against" the proposal and therefore have the
effect of votes "Against" the proposal. The presence at the United Cities
Shareholders Meeting, whether in person or by proxy, of the holders of a
majority of the outstanding shares of United Cities Stock entitled to vote
constitutes a quorum for the transaction of business. Abstentions and broker
non-votes will be counted as present for purposes of determining a quorum at
the United Cities Shareholders Meeting. Holders of United Cities Stock who
dissent from the Merger and who comply with the required statutory procedures
will have certain dissenters' rights. See "The Reorganization Agreement and
The Merger--Dissenters' Rights."
The United Cities Board of Directors has fixed the close of business on
October 2, 1996 as the record date for the determination of the United Cities
shareholders entitled to receive notice of, and to vote at, the United Cities
Shareholders Meeting. Only holders of record of United Cities Stock at the
close of business on that date will be entitled to notice of, and to vote at,
the United Cities Shareholders Meeting or any adjournments or postponements
thereof. As of October 2, 1996, 13,174,794 shares of United Cities Stock were
issued and outstanding. These shares constitute the only class of stock of
United Cities issued and outstanding. Each share is entitled to one vote. In
the Reorganization Agreement, United Cities agreed not to issue any additional
shares of United Cities Stock or other ownership interests in United Cities
prior to the Effective Time, except for issuances pursuant to plans in effect
prior to the date of the Reorganization Agreement.
27
The following table lists the beneficial ownership, as of October 2, 1996,
of shares of United Cities Stock by each of the United Cities directors and
executive officers, all directors and executive officers as a group and by
each person known to United Cities to be a beneficial owner of more than 5% of
the outstanding shares of United Cities Stock:
PERCENTAGE OF
AMOUNT OF UNITED CITIES STOCK OUTSTANDING
NAME BENEFICIALLY OWNED(A) UNITED CITIES STOCK
---- ----------------------------- -------------------
Jerry H. Ballengee....... 500 (b)
Dwight C. Baum........... 230,322 1.7%
Thomas R. Blose, Jr. .... 12,537(c) (b)
Richard W. Cardin........ 1,000 (b)
James B. Ford............ 8,025(c) (b)
Thomas J. Garland........ 2,016 (b)
Shirley M. Hawkins....... 8,675(c) (b)
Dale A. Keasling......... 482 (b)
Gene C. Koonce........... 30,710(c) (b)
Vincent J. Lewis......... 8,149 (b)
Dennis L. Newberry, II... 4,450 (b)
Stirton Oman, Jr. ....... 1,760 (b)
Glenn B. Rogers.......... 28,182(c) (b)
Timothy W. Triplett...... 3,547 (b)
George C. Woodruff,
Jr. .................... 1,691 (b)
All directors and
executive officers as a
group (15 Persons)...... 342,046(c) 2.6%
Southern Union Company... 854,300(d) 6.5%
504 Lavaca, Suite 800
Austin, TX 78701-2939
- --------
(a) Beneficial holdings shown herein include shares held by spouses and minor
children; the directors and officers neither affirm nor deny that such
shares are in fact beneficially owned by them.
(b) The percentage of shares beneficially owned by such person does not exceed
1% of the outstanding United Cities Stock.
(c) Includes shares that may be acquired pursuant to the exercise of stock
options exercisable within 60 days of October 2, 1996, as follows: 8,600
shares for Mr. Blose, 2,600 shares for Mr. Ford, 2,600 shares for Ms.
Hawkins, 12,000 shares for Mr. Koonce and 14,600 shares for Mr. Rogers and
40,400 shares for all directors and executive officers as a group.
(d) Based on a Schedule 13D filed by Southern Union Company with the
Commission on August 1, 1996. For further information regarding the shares
of United Cities Stock held by Southern Union Company, see "Background of
the Merger."
The directors and executive officers of United Cities who, as of October 2,
1996, beneficially owned in the aggregate 301,646 shares of United Cities
Stock (excluding shares that such persons have the right to acquire within 60
days of such date pursuant to options or other rights) have stated that they
intend to vote all shares of United Cities Stock over which they exercise
voting control in favor of the proposal to ratify and approve the
Reorganization Agreement and approve the Plan of Merger and the Merger.
SOLICITATION AND REVOCABILITY OF PROXIES
United Cities expects to solicit proxies primarily by mail, but directors,
officers, employees and agents of United Cities may also solicit proxies in
person or by telephone or other electronic means. The cost of preparing,
assembling and mailing the proxies and accompanying materials for the United
Cities Shareholders Meeting, including the cost of reimbursing brokers and
nominees for forwarding proxies and proxy statements to their
28
principals, will be paid by United Cities. In addition, Corporate Investors
Communications, Inc. ("CIC") will assist United Cities in the solicitation of
proxies. It is estimated that United Cities will pay approximately $6,000 in
fees, plus expenses and disbursements, to CIC for CIC's proxy solicitation
services.
Shares of United Cities Stock represented by properly executed proxies
received prior to or at the United Cities Shareholders Meeting, unless such
proxies have been revoked, will be voted in accordance with the instructions
indicated in the proxies. If no instructions are indicated on an executed
United Cities form of proxy, the shares covered by such proxy will be voted
"For" approval of the proposal to ratify and approve the Reorganization
Agreement and approve the Plan of Merger and the Merger.
It is not expected that any matters other than those referred to herein will
be brought before the United Cities Shareholders Meeting. However, if any
other matters are properly presented at the United Cities Shareholders Meeting
for consideration, including, among other things, consideration of a motion to
adjourn the meeting to another time or place (including, without limitation,
for the purpose of soliciting additional proxies), the persons named in the
form of proxy and acting thereunder will have discretion to vote the shares of
United Cities Stock covered by validly executed proxies in accordance with
their best judgment. As of the date hereof, the United Cities Board of
Directors knows of no such other matters.
Any proxy given pursuant to this solicitation or otherwise may be revoked by
the person giving such proxy by delivery, at any time prior to the time the
shares are voted, of written notice of revocation bearing a later date than
the proxy or a later dated proxy relating to the same shares of United Cities
Stock to the Corporate Secretary of United Cities or by attending the United
Cities Shareholders Meeting and voting in person. Attendance at the United
Cities Shareholders Meeting will not in itself constitute the revocation of a
proxy.
UNITED CITIES SHAREHOLDERS ARE REQUESTED TO PROMPTLY SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY CARD IN THE ENCLOSED POSTAGE-PAID, PRE-ADDRESSED
ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE
MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST RATIFICATION AND APPROVAL
OF THE REORGANIZATION AGREEMENT AND APPROVAL OF THE PLAN OF MERGER AND THE
MERGER.
UNITED CITIES SHAREHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS. PROMPTLY FOLLOWING THE CONSUMMATION OF THE MERGER, UNITED
CITIES SHAREHOLDERS WILL BE SENT A TRANSMITTAL FORM WHICH WILL INCLUDE
INSTRUCTIONS FOR THE RETURN AND EXCHANGE OF STOCK CERTIFICATES. SEE "THE
REORGANIZATION AGREEMENT AND THE MERGER--EXCHANGE OF CERTIFICATES."
29
BACKGROUND OF THE MERGER
HISTORY OF THE MERGER NEGOTIATIONS
The terms and conditions of the Reorganization Agreement, the Plan of Merger
and the Merger were determined through arms-length negotiations between the
respective managements of Atmos and United Cities. In determining the form of
the transaction and the amount of the consideration, numerous factors were
considered by Atmos and United Cities. See "Background of the Merger--Reasons
for the Merger; Recommendations of the Boards of Directors." The following is
a summary of those negotiations and related events.
As part of its corporate development strategy, Atmos is continuously
searching for other gas distribution companies and properties as potential
combination or acquisition candidates in order to expand its customer base and
to diversify the weather patterns, local economic conditions and regulatory
environments to which its operations are subject. As part of this strategy,
Atmos has engaged in a number of business combinations and acquisitions since
1985 that have increased its customer base by approximately 325,000 customers
to a present total of approximately 673,000.
United Cities has historically been active in the acquisition market. At the
end of 1995, United Cities supplied natural gas service to approximately
308,000 customers, 180,000 of whom had been added since 1985. Of that 180,000,
approximately 105,000 customers had been added through acquisitions. United
Cities' business philosophy has been that success in its industry is dependent
on growth and the diversification of its business into areas covered by
different weather patterns, local economic conditions and regulatory
environments. Over the past several years, the management and Board of
Directors of United Cities have periodically reviewed developments in the gas
utility industry generally and have considered the impact of such developments
on United Cities and what actions United Cities might take in reaction to such
developments.
Mr. Charles K. Vaughan, Chairman of the Board of Atmos, and Mr. Gene C.
Koonce, Chairman of the Board, President and Chief Executive Officer of United
Cities, have been acquaintances for many years through participation in gas
industry trade associations. During August 1995, while on a business trip to
the Nashville, Tennessee area, Mr. Vaughan and Mr. Robert F. Stephens,
President and Chief Operating Officer of Atmos, met with Mr. Koonce in
Nashville. Mr. Vaughan inquired of Mr. Koonce about the possibility of a
merger between Atmos and United Cities. Mr. Koonce stated that it was the
policy of United Cities to remain independent. Several days after the meeting,
Mr. Stephens telephoned Mr. Koonce to pursue discussions with Mr. Koonce, but
was advised by Mr. Koonce that any further discussions would be delayed until
his planned visit to Dallas in late September 1995.
At a breakfast meeting in Dallas on September 30, 1995, Messrs. Vaughan,
Stephens and Koonce discussed the possibility of a merger of United Cities
with Atmos. Mr. Koonce advised that he had not discussed the possibility of a
merger with Atmos with the Board of Directors of United Cities. Mr. Koonce
advised further that United Cities was not for sale and that he did not
believe that United Cities would be interested in a merger at that time.
In November 1995, Mr. Vaughan and Mr. Koonce attended an industry
conference. At that meeting, Mr. Vaughan asked Mr. Koonce if United Cities
would be interested in pursuing discussions with respect to a possible merger
with Atmos, and Mr. Koonce replied that United Cities was not interested in
such discussions at that time.
At a three day planning session in February 1996 of the Board of Directors
of United Cities, the directors heard a presentation by an outside consultant
with respect to strategic issues facing United Cities and a presentation by an
industry analyst with respect to developments in the gas utility industry. In
addition, management made a presentation on a potential internal restructuring
to simplify the management structure. At the February meeting, Mr. Koonce
advised the Board of the contacts by Atmos.
30
In February 1996, Mr. Vaughan telephoned Mr. Koonce and asked again if
United Cities would be interested in discussing a possible merger with Atmos.
Mr. Koonce replied that United Cities was not interested at that time.
Mr. Vaughan and Mr. Koonce both attended another industry conference in
April 1996. Mr. Vaughan again asked Mr. Koonce if United Cities would be
interested in discussing a possible merger with Atmos. Mr. Koonce replied that
he would contact Mr. Vaughan if United Cities wished to pursue the matter. Mr.
Vaughan made a further call to Mr. Koonce in late April or early May, but Mr.
Koonce said he had nothing further to add at that point.
At the United Cities annual shareholders meeting on May 3, Mr. Koonce
announced his intention to retire as President and Chief Executive Officer of
United Cities at the end of 1996. At a Board meeting following the annual
shareholders meeting, the Board elected Mr. Koonce Chairman of the Board and
appointed a search committee to identify a successor chief executive officer.
Mr. Koonce also updated the directors with respect to the contacts with Atmos.
Later in May 1996, while attending an industry conference, Mr. Vaughan and
Mr. Koonce had a discussion concerning a possible merger between Atmos and
United Cities. During that discussion, Mr. Koonce indicated that United Cities
might be willing to discuss the possibility of such a merger. They agreed to
meet again after Mr. Koonce returned from an overseas trip. Upon his return to
Dallas and before Mr. Koonce left on his trip, Mr. Vaughan telephoned Mr.
Koonce regarding a possible merger. During their telephone conversation, Mr.
Koonce indicated that the United Cities Board of Directors was not interested
in a sale of the company, but might be interested in a strategic combination
which preserved the interests of United Cities' shareholders in the surviving
entity. Mr. Koonce inquired as to Atmos' views on the number of directors from
the United Cities Board who would be nominated for the Atmos Board if a merger
of the companies occurred and the relative valuation of the two companies for
purposes of determining an exchange ratio for the shares of Common Stock of
United Cities. Mr. Vaughan said he would give the matter some thought and
would share his thinking with Mr. Koonce after Mr. Koonce returned from his
trip overseas.
After his telephone conversation with Mr. Vaughan, Mr. Koonce contacted a
representative of PaineWebber, briefed him about Atmos' most recent contact,
and asked him to begin thinking about what would represent a reasonable
exchange ratio in a transaction of the type being discussed.
Mr. Vaughan and Mr. Koonce met again on June 25, after Mr. Koonce returned
from his trip. At that meeting, Mr. Vaughan said that he thought that Atmos
would be interested in exploring a merger with United Cities on the basis of a
valuation of United Cities that, based upon Atmos' then current stock price,
would produce an exchange ratio of approximately one Atmos share for each
United Cities share. Mr. Vaughan indicated that such a relative valuation
would depend upon the results of due diligence, market prices for the two
companies' stock and other conditions existing at the time an agreement on a
merger might be reached and other relevant factors. Mr. Vaughan indicated that
he thought Atmos would be able to commit to increase its indicated annual
dividend from $.96 per share to United Cities' annual dividend of $1.02 per
share. He said that he felt United Cities should have the right to designate
four of the directors of the surviving company. Mr. Koonce advised that United
Cities was interested in a merger with Atmos because of, among other things,
the compatibility of their respective business philosophies and corporate
cultures. It was agreed that additional discussions would be held after each
of them had a chance to brief his company's Board and receive appropriate
direction and authorization.
The Atmos Board of Directors held its annual planning session at a series of
Board meetings on June 27, 28 and 29, 1996. At the first of these meetings,
Mr. Vaughan advised the Board of Directors of his discussions with Mr. Koonce.
At the second meeting, an analysis of United Cities, developed from documents
filed by United Cities with the Commission, was presented to the Board by Mr.
O. Carl Brown, Vice President--Financial and Strategic Planning of Atmos,
which presentation was followed by extensive discussions among members of the
Board and Mr. Brown concerning United Cities and its operations. It was
emphasized to the Board of Directors
31
that any merger with United Cities would be subject to a determination of the
value of United Cities by Atmos with the assistance of its financial advisor
in order to establish an appropriate exchange ratio, an extensive due
diligence investigation of the operations of United Cities and negotiation of
a satisfactory definitive merger agreement. Also, the Board of Directors was
advised that it was contemplated that the transaction would be accounted for
as a pooling of interests. After extensive discussions, the Atmos Board of
Directors determined that management of Atmos should proceed with discussions
with the management of United Cities for a possible merger of United Cities
into Atmos. Following the Board planning session, Atmos management met with
its tax, accounting, financial and legal advisors to analyze further the
publicly available information concerning United Cities.
On July 1, at a United Cities telephonic Board meeting, Mr. Koonce informed
the United Cities Board of his recent discussions with Mr. Vaughan. Mr. Koonce
reviewed with the Board certain publicly available information regarding the
nature of Atmos' operations and its management. Mr. Koonce also reviewed
Atmos' management philosophy and general reputation in the industry. The Board
also generally considered its policy of maintaining United Cities as an
independent entity and United Cities' prospects in the current competitive
environment and what impact a strategic combination with Atmos might have on
such prospects. Based upon such discussions, the Board authorized management
to commence further discussions with Atmos regarding a possible strategic
combination and to begin due diligence with respect to Atmos.
A meeting was held on July 2 and 3, 1996 in Dallas between Mr. Stephens and
Mr. Purser, Executive Vice President and Chief Financial Officer of Atmos, and
Mr. James B. Ford, Senior Vice President and Treasurer and Mr. Thomas R.
Blose, Jr., Senior Vice President--Operations and Engineering, of United
Cities. At that meeting, a schedule for due diligence investigations for both
companies was agreed upon. On July 5, Atmos and United Cities executed a
confidentiality agreement with respect to due diligence information furnished
by the respective companies.
On July 10 and 11, representatives of Atmos and United Cities, together with
their respective financial advisors, counsel and independent auditors, met in
Nashville for Atmos to conduct a due diligence investigation of United Cities.
An initial draft of the Reorganization Agreement was presented to United
Cities by Atmos at the Nashville meeting and formed the basis for their
subsequent negotiations in Dallas commencing on July 12. The Nashville meeting
was followed by a similar meeting in Dallas on July 12 and 13, at which United
Cities conducted a due diligence investigation of Atmos. At such meetings,
management and employees of each party supplied information to, and answered
questions from, the other party's representatives concerning the principal
aspects of its business operations, financial condition, results of operation,
assets, liabilities, personnel, business risks and contingencies and
prospects. At the conclusion of such meetings, Atmos and United Cities agreed
to continue the negotiation of a definitive agreement for the merger of United
Cities into Atmos. United Cities requested, and on July 13, Atmos and United
Cities signed, the Standstill Agreement. See "The Reorganization Agreement and
The Merger--Standstill Agreement."
During the week of July 15, negotiation of the Reorganization Agreement
between Atmos and United Cities continued in Dallas between Mr. Ford of United
Cities and Messrs. Stephens and Purser of Atmos and their respective counsel.
On July 18, Messrs. Koonce and Ford, representing United Cities, and Messrs.
Vaughan and Purser, representing Atmos, met in Dallas to discuss the financial
terms of the proposed merger. Messrs. Vaughan and Koonce agreed to recommend
to the respective Boards of Directors of Atmos and United Cities, in
connection with the Boards' consideration of the proposed transaction, an
exchange ratio of one share of Atmos Stock for each outstanding share of
United Cities Stock. On July 18, a draft of the Reorganization Agreement was
delivered to the directors of United Cities and of Atmos.
On July 18, management of Atmos presented its proposal for a merger with
United Cities to the Atmos Board of Directors at a special meeting called for
that purpose. Management's presentation included a financial review of United
Cities, the results of Atmos' due diligence investigation of United Cities and
a review of the terms and conditions of the Reorganization Agreement and
related documents. The Board of Directors received a report from Merrill Lynch
with respect to the relative values of Atmos and United Cities. Also,
presentations
32
were made by Ernst & Young, independent auditors for Atmos, concerning pooling
of interests and other accounting matters, and by counsel for Atmos concerning
the federal income tax aspects of the proposed merger. On Friday, July 19, the
Board of Directors of Atmos continued its special meeting with respect to the
proposed merger. After consideration of the foregoing presentations and
reports, late in the afternoon on July 19, the Board of Directors voted
unanimously to approve the Reorganization Agreement, the Plan of Merger and
the Merger and the transactions contemplated thereby and to recommend the
proposed Merger to the shareholders of Atmos.
Management of United Cities presented the proposal for a merger with Atmos
to the United Cities Board at a special meeting called for that purpose and
held on July 19. At that meeting, senior management of United Cities made a
presentation to the Board regarding the results of the due diligence
investigation of Atmos and the terms and conditions of the Reorganization
Agreement and the Standstill Agreement. In addition, presentations were made
by Chapman and Cutler, legal counsel to United Cities, Thompson & Knight,
special Texas counsel to United Cities, and Arthur Andersen, United Cities'
independent accountants, with respect to various issues relating to the
proposed business combination. Further, PaineWebber made a presentation to the
United Cities Board with respect to each of United Cities, Atmos and the
proposed combined entity. PaineWebber also delivered to the United Cities
Board its written opinion that, as of July 19, 1996, the Exchange Ratio was
fair to the holders of United Cities Stock from a financial point of view.
After extensive discussion, the United Cities Board, late in the afternoon on
July 19, unanimously approved the Reorganization Agreement, the Plan of Merger
and the Merger and authorized the execution and delivery of the Reorganization
Agreement.
The Reorganization Agreement was executed and delivered by the parties late
in the afternoon on July 19. The proposed merger was announced prior to the
opening of trading on the NYSE and The Nasdaq National Market on Monday,
July 22.
On August 1, 1996, Southern Union Company ("Southern Union") filed with the
Commission a Schedule 13D under the Exchange Act disclosing, among other
things, that Southern Union beneficially owned 854,300 shares of United Cities
Stock, or approximately 6.5% of all outstanding shares of United Cities Stock.
Southern Union's Schedule 13D also disclosed that Southern Union "plans to
purchase additional shares of [United Cities] Common Stock. . ." and that
"[o]ptions that [Southern Union] may explore could relate to or result in
plans or proposals in the future. . .including alternatives to the sale of
[United Cities] to Atmos. . . ."
On August 6, 1996, Atmos and United Cities jointly filed a complaint (the
"MPSC Complaint") against Southern Union with the Missouri Public Service
Commission (the "MPSC"). Such complaint alleges, among other things, that
Southern Union purchased United Cities stock without the prior approval of the
MPSC, in violation of applicable Missouri law. The complaint seeks, among
other things, a divestiture of the United Cities Stock owned by Southern
Union.
On August 19, Southern Union filed a complaint in the United States District
Court for the Eastern District of Missouri (Southern Division) seeking a
determination that the Missouri statute that is the basis of the MPSC
Complaint is not applicable to Southern Union's purchases of the United Cities
Stock or otherwise is unconstitutional under the federal and Missouri
constitutions.
On August 20, Southern Union filed a complaint in the United States District
Court for the Middle District of Tennessee (Nashville Division) (the
"Tennessee Complaint") alleging that the United Cities Board of Directors
failed to exercise its fiduciary duties properly in approving the proposed
Merger into Atmos. The Tennessee Complaint seeks preliminary and permanent
injunctive relief against United Cities (i) to prevent its taking any further
action to consummate the proposed Merger until such time as the United Cities
Board of Directors has properly exercised its fiduciary duties and (ii)
directing United Cities to provide Southern Union with confidential
information in order to provide Southern Union with the option of making an
informed offer for United Cities, in the event it determines to do so.
On September 24, 1996, United Cities and the United Cities Board of
Directors filed an answer to the Tennessee Complaint. In the answer, United
Cities and the United Cities Board of Directors deny all allegations relating
to Southern Union's claim that the United Cities Board failed to properly
exercise its fiduciary duties in approving the proposed Merger.
33
REASONS FOR THE MERGER; RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
United Cities and Atmos believe that the Merger offers strategic and
financial benefits to each company and to their respective shareholders, as
well as to their employees and customers and the communities in which they do
business, including the following:
--COST EFFICIENCIES TO HELP MAINTAIN COMPETITIVE RATES--The surviving
company will be more effective in meeting the challenges of the
increasingly competitive environment in the utility industry than either
United Cities or Atmos standing alone. The combined company will benefit
from potential economies of scale in its operations and be able to
amortize certain costs over a larger customer base. In addition, as a
larger entity, Atmos' and United Cities' managements believe that the
surviving company will have more influence with suppliers and customers
than either company standing alone. The Merger will create the opportunity
for strategic, financial and operational benefits for shareholders in the
form of greater financial strength and financial flexibility.
--DIVERSIFICATION OF SERVICE TERRITORY--The combined service territories of
United Cities and Atmos will be larger and more diverse than either of the
service territories of United Cities or Atmos as independent entities. The
combined entity will be less exposed than either Atmos or United Cities is
currently to changes in the economic conditions in any given segment of
its service areas. Specifically, the combined entity will be more diverse
with respect to control by any single regulatory authority, with respect
to climatic conditions and with respect to its customer mix. On the other
hand, both companies' service territories are primarily rural in
character, so that the kinds of operational problems that are likely to be
encountered are of a nature that both management teams have had experience
dealing with.
--BALANCE BETWEEN INCOME FROM REGULATED BUSINESS AND NONREGULATED
BUSINESS--The combined entity will have a well-balanced mix of income from
regulated versus non-regulated businesses.
--BUSINESS OPPORTUNITIES CREATED BY COMBINATION--The surviving entity,
because of its larger size and other factors, will be able to take
advantage of certain opportunities resulting from the combination. For
example, the combined company will have increased buying power, have an
enhanced liquidity and ability to secure financing on favorable terms and
be able to make larger acquisitions without a material adverse impact on
its existing structure.
United Cities.
The United Cities Board has unanimously approved the Reorganization
Agreement and the Plan of Merger and has determined that the Merger is fair
to, and in the best interests of, United Cities and United Cities'
shareholders. The United Cities Board, therefore, unanimously recommends that
United Cities' shareholders vote FOR the proposal to ratify and approve the
Reorganization Agreement and approve the Plan of Merger and the Merger. The
United Cities Board believes that the Merger affords United Cities'
shareholders the opportunity to realize significant value on their investment
and also gives them the option of participating in opportunities for growth
that the United Cities Board believes the Merger makes possible. See
"Background of the Merger."
In addition to the joint benefits described above, the United Cities Board
took into account the fact that Atmos has agreed to increase its indicated
annual dividend so that it is equal to United Cities' annual dividend of $1.02
per share (subject to certain qualifications) for a period of not less than
four quarters following the consummation of the Merger. In reaching its
determination that the Reorganization Agreement is fair to, and in the best
interests of, United Cities and United Cities' shareholders, the United Cities
Board considered a number of factors, from both a short-term and a long-term
perspective, in addition to the ones described above, including, without
limitation, the following:
(a) the current and historical market prices and dividends on the United
Cities Stock and the Atmos Stock (see "Summary--Comparative Market Prices
and Dividends");
34
(b) information concerning the business, financial condition, results of
operations and prospects, including, but not limited to, the potential for
growth, development, productivity and profitability, of each of United
Cities and Atmos;
(c) the projected pro forma ownership of Atmos by the shareholders of
United Cities implied by the Exchange Ratio;
(d) the positive reputation of Atmos as a provider of utility service and
the satisfactory relationship Atmos appears to enjoy with the relevant
regulatory authorities;
(e) the perception by management of United Cities, based upon numerous
experiences in which United Cities and Atmos were bidding on the same
properties, that Atmos management is a prudent and able acquiror of
companies;
(f) the fact that Mr. Koonce had indicated he would retire at the end of
1996, the United Cities Board of Directors had not yet identified a
successor chief executive officer and the Atmos management team has an
excellent reputation;
(g) the fact that after the Merger the surviving entity will be owned by
an unaffiliated group of public shareholders, as is United Cities
currently, and no shareholder or affiliated group of shareholders will own
a majority of the surviving company's voting power;
(h) the fact that the Reorganization Agreement permits United Cities,
subject to certain conditions, to furnish information to or enter into
discussions or negotiations with, any person or entity that makes an
unsolicited contact in connection with a bona fide Competing Transaction
(as defined therein) if the Board of Directors determines in good faith
based on, among other matters, the written advice of legal counsel, that
such action is required for the Board of Directors to comply with its
fiduciary duties to shareholders imposed by law, and the Reorganization
Agreement further permits United Cities to terminate the Reorganization
Agreement in the exercise of the fiduciary duties of the Board of Directors
with respect to a Competing Transaction, subject to the payment of a fee of
$15 million;
(i) the fact that the combined company will be less leveraged than United
Cities, thus allowing for better access to the capital markets and a lower
cost of capital and the importance of access to capital on economically
attractive terms, in light of the need to expand operations in United
Cities' service area;
(j) the opinion of PaineWebber that the Exchange Ratio is fair to the
United Cities shareholders from a financial point of view, and the analysis
underlying such opinion (see "Background of the Merger--Reasons for the
Merger; Recommendations of the Boards of Directors" and "--Opinion of
United Cities' Financial Advisor");
(k) the provisions of the proposed Reorganization Agreement, which
provide for reciprocal representations and warranties, conditions to
closing and rights to termination and reasonable protection for the
employees of United Cities;
(l) the expected tax-free nature of the transaction to United Cities'
shareholders;
(m) the likelihood that the proposed transaction will be consummated;
(n) the fact that the market capitalization of the combined company will
be larger than United Cities' current market capitalization, providing
United Cities' shareholders with enhanced liquidity; and
(o) the compatibility of the respective businesses and management
philosophies of United Cities and Atmos.
35
While each member of the United Cities Board individually evaluated each of
the foregoing as well as other factors, the United Cities Board collectively
did not assign any specific or relative weights to the factors under
consideration and did not make any determination with respect to any
individual factor. The United Cities Board collectively made its determination
with respect to the Merger based on the unanimous conclusion reached by its
members that the Merger, in light of the factors that each of them
individually considered as appropriate, is fair and in the best interests of
United Cities and the United Cities shareholders.
Atmos.
The Board of Directors of Atmos believes that the terms of the
Reorganization Agreement, the Plan of Merger and the Merger are fair to, and
in the best interests of, Atmos and its shareholders. Accordingly, the Atmos
Board has unanimously approved the Reorganization Agreement, the Plan of
Merger and the Merger and unanimously recommends that the holders of Atmos
Stock vote FOR the proposal to ratify and approve the Reorganization Agreement
and approve the Plan of Merger and the Merger.
In addition to the joint benefits described above, the Board of Directors of
Atmos believes that the Merger is consistent with Atmos' continuing long-term
corporate development strategy of increasing shareholder value through
external growth and that the Merger will create a stronger company from both a
financial and operational viewpoint. Over the long-term, this combination is
expected to add stability and predictability to earnings and cash flow. United
Cities is recognized as a financially sound and well-managed company and is
well regarded in the industry, and the Board of Directors of Atmos believes
that the Merger represents a logical and natural extension of Atmos' business.
The Board also believes that the Merger is consistent with Atmos' long-term
goals of expanding its customer base and diversifying the weather patterns,
local economic conditions and regulatory environments to which its operations
are subject.
In approving the Reorganization Agreement, the Plan of Merger and the
Merger, the Atmos Board carefully reviewed the Merger with management and
Atmos' financial, accounting and legal advisors. The Atmos Board reviewed
various materials relevant to the Merger and received presentations from, and
reviewed carefully the terms and conditions of the transactions contemplated
by the Reorganization Agreement with, Atmos' management, independent public
accountants, legal counsel and financial advisors. The presentation at the
Atmos Board of Directors' annual planning session held during June 27-29, 1996
included a discussion of Atmos' long-term strategic objectives and general
information regarding United Cities' business. In particular, the Board
reviewed United Cities' historical revenues, cash flow and operating income by
segment, communities served by United Cities and number of employees for the
purposes of determining whether United Cities' operations provided revenue
opportunities and whether United Cities' employee and customer profiles were
consistent with the corporate culture of Atmos. At the special meeting of the
Board of Directors held on July 18-19, 1996, management of Atmos reviewed the
operations of United Cities, reported on its due diligence investigation of
United Cities to date and reviewed the basic terms of the proposed Merger.
Atmos' counsel discussed the federal income tax aspects of the proposed
Merger. Ernst & Young, independent public accountants for Atmos, discussed the
accounting aspects of the proposed Merger. Atmos' financial advisor, Merrill
Lynch, presented its analysis of the proposed Merger.
The Board of Directors of Atmos approved the Reorganization Agreement, the
Plan of Merger and the Merger at the continuation of the special meeting of
the Board on July 19, 1996. At that meeting, Merrill Lynch delivered its
opinion to the Board to the effect that the Exchange Ratio was fair, from a
financial point of view, to Atmos as of such date. In deciding to approve the
Reorganization Agreement, the Plan of Merger, and the Merger, the Atmos Board
considered the Merrill Lynch opinion and a number of other factors. The
material factors considered by the Board were as follows: (i) the current and
historical market price of, and dividends on, Atmos Stock and United Cities
Stock and the fact that, based on such current market prices, the United
Cities shareholders would receive a premium over the current net book value of
the United Cities Stock; (ii) the impact of the Merger on Atmos' earnings per
share; (iii) the assets, properties, operations and management of Atmos and
United Cities, including the quality of United Cities' distribution system and
management as well as environmental issues; (iv) the financial condition,
results of operations and prospects of United Cities and Atmos,
36
individually and as a combined entity, on both a historical and a pro forma
combined basis; (v) the expected accounting treatment of the Merger as a
pooling of interests transaction; (vi) the terms and conditions of the
Reorganization Agreement, including the covenants and warranties for the
protection of Atmos and Atmos' shareholders made by United Cities; and (vii)
the presentations and advice of its financial advisor and legal counsel as
discussed above. The Board of Directors of Atmos considered the foregoing
factors as a whole and did not assign specific or relative weights to such
factors.
OPINION OF ATMOS' FINANCIAL ADVISOR
On July 19, 1996, Merrill Lynch delivered its oral opinion, which opinion
was subsequently confirmed in written opinions dated as of July 19, 1996 and
October 4, 1996, to the Atmos Board of Directors to the effect that, as of
such dates, and based upon the assumptions made, matters considered and limits
of review, as set forth therein, the Exchange Ratio was fair to Atmos from a
financial point of view.
A COPY OF THE MERRILL LYNCH OPINION DATED OCTOBER 4, 1996, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE SCOPE
OF REVIEW UNDERTAKEN BY MERRILL LYNCH, IS ATTACHED AS EXHIBIT B TO THIS JOINT
PROXY STATEMENT/PROSPECTUS. ATMOS SHAREHOLDERS ARE URGED TO READ SUCH OPINION
IN ITS ENTIRETY. THE MERRILL LYNCH OPINION IS DIRECTED ONLY TO THE FAIRNESS OF
THE EXCHANGE RATIO TO ATMOS FROM A FINANCIAL POINT OF VIEW AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY ATMOS SHAREHOLDER AS TO HOW ANY SUCH
SHAREHOLDER SHOULD VOTE AT THE ATMOS SHAREHOLDERS MEETING. THE SUMMARY OF SUCH
OPINIONS SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS, WHILE CONTAINING
ALL MATERIAL ELEMENTS OF SUCH OPINIONS, IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE OPINION ATTACHED AS EXHIBIT B HERETO.
In arriving at its opinion, Merrill Lynch among other things (i) reviewed
Atmos' Annual Reports, Forms 10-K and related financial information for the
five fiscal years ended September 30, 1995 and its Forms 10-Q and the related
unaudited financial information for the quarterly periods ending December 31,
1995, March 31, 1996 and June 30, 1996; (ii) reviewed United Cities' Annual
Reports, Forms 10-K and related financial information for the five years ended
December 31, 1995 and its Forms 10-Q and the related unaudited financial
information for the quarterly periods ended March 31, 1996 and June 30, 1996;
(iii) reviewed certain information, including financial forecasts, relating to
the business, earnings, cash flow, assets and prospects of Atmos and United
Cities, furnished to Merrill Lynch by Atmos and United Cities, respectively;
(iv) conducted discussions with members of senior management of Atmos and
United Cities concerning their respective businesses and prospects; (v)
reviewed the historical market prices and trading activity for Atmos Stock and
United Cities Stock and compared them with those of certain publicly traded
companies deemed by Merrill Lynch to be reasonably similar to Atmos and United
Cities, respectively; (vi) compared the results of operations of Atmos and
United Cities with those of certain companies deemed by Merrill Lynch to be
reasonably similar to Atmos and United Cities, respectively; (vii) compared
the proposed financial terms of the transactions contemplated by the
Reorganization Agreement with the financial terms of certain other mergers and
acquisitions which Merrill Lynch deemed to be relevant; (viii) considered the
pro forma effect of the Merger on Atmos' capitalization ratios and earnings,
cash flow and book value; (ix) reviewed the Reorganization Agreement; (x)
analyzed the relative valuation of Atmos Stock and United Cities Stock using
various valuation methodologies which Merrill Lynch deemed to be appropriate;
and (xi) reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters deemed necessary
by Merrill Lynch for purposes of rendering the Merrill Lynch Opinion.
In preparing its opinion, Merrill Lynch relied on the accuracy and
completeness of all information supplied or otherwise made available to it by
Atmos and United Cities, and did not assume any responsibility for independent
verification of such information. Merrill Lynch did not undertake an
independent appraisal of the assets of Atmos or United Cities. Merrill Lynch
also assumed that the financial forecasts furnished to it by Atmos and United
Cities were reasonably prepared and reflected the best currently available
estimates and judgments of Atmos' and United Cities' respective managements as
to the expected future financial performance of Atmos
37
and United Cities, respectively. With respect to the estimates of potential
synergies furnished by Atmos, Merrill Lynch assumed that such estimates were
reasonably prepared and reflected the best currently available estimates and
judgment of management of Atmos as to the expected synergies from the Merger.
Merrill Lynch also assumed that pooling of interests was the proper accounting
treatment for the Merger and that the Merger will qualify as a tax-free
reorganization for the shareholders of Atmos and United Cities. The Merrill
Lynch opinion is based upon general economic, market, monetary and other
conditions as they existed and could be evaluated, and the information made
available to Merrill Lynch, as of the date of such opinion. No limitations
were imposed by the Board of Directors of Atmos upon Merrill Lynch with
respect to the investigation made or procedures followed by Merrill Lynch in
rendering its opinion.
The matters considered by Merrill Lynch in arriving at its opinion are based
on numerous macroeconomic, operating and financial assumptions with respect to
industry performance, general business and economic conditions, many of which
are beyond the control of Atmos and United Cities and involve the application
of complex methodologies and educated judgment. Any estimates incorporated in
the analyses performed by Merrill Lynch are not necessarily indicative of
actual past or future results or values, which may be significantly more or
less favorable than such estimates. Estimated values do not purport to be
appraisals and do not necessarily reflect the prices at which businesses or
companies may be sold in the future.
The following is a summary of certain financial and comparative analyses
performed by Merrill Lynch in arriving at its July 19, 1996 opinion. Merrill
Lynch derived implied exchange ratios for Atmos Stock and United Cities Stock
based upon the relative values suggested by these analyses, in light of the
judgment and experience of Merrill Lynch. Merrill Lynch's opinion is based
upon Merrill Lynch's consideration of the collective results of all such
analyses, together with the other factors referred to in its opinion letter.
In the Merger, each issued and outstanding share of United Cities Stock will
be converted into the right to receive one share of Atmos Stock. In concluding
that the Exchange Ratio was fair to Atmos from a financial point of view, and
in its discussions with the Atmos Board of Directors, Merrill Lynch compared
the Exchange Ratio to each range of implied exchange ratios set forth below,
which were derived from the analyses performed by Merrill Lynch, and noted
that the Exchange Ratio was generally consistent with the ranges of such
implied exchange ratios. The implied exchange ratios derived by Merrill Lynch
were as follows: (i) contribution analysis (0.94 to 1.12); (ii) comparable
acquisitions analysis (0.80 to 1.15); (iii) comparable company trading
analysis (0.75 to 0.90); (iv) discounted cash flow analysis (1.05 to 1.12);
and (v) merger premium analysis (0.79 to 0.91). In arriving at its opinion,
Merrill Lynch considered, as one of the factors in its analysis, that the
Exchange Ratio is outside of certain of the implied exchange ratios.
Contribution Analysis. In order to determine an implied exchange ratio range
based upon contribution analysis, Merrill Lynch calculated the contribution of
each of Atmos and United Cities to the pro forma combined company with respect
to (i) net income to common shareholders, (ii) book value, (iii) earnings
before interest, taxes, depreciation and amortization ("EBITDA") and (iv)
earnings before interest and taxes ("EBIT") for the latest twelve months
("LTM") ended March 31, 1996 (the "Historical Period") and, using certain
projections provided by the respective managements of Atmos and United Cities,
for 1996 (the "Projected Period"). The analysis of net income to common
shareholders yielded an implied exchange ratio for United Cities Stock to
Atmos Stock of 0.67 for the Historical Period and 0.94 for the Projected
Period. The analysis of book value yielded an implied exchange ratio of 1.12
for the Projected Period. The analysis of EBITDA yielded an implied exchange
ratio of 0.99 for the Historical Period and 1.03 for the Projected Period. The
analysis of EBIT yielded an implied exchange ratio of 0.91 for the Historical
Period and 1.07 for the Projected Period.
Utilizing the contribution analysis, Merrill Lynch calculated an implied
exchange ratio range of 0.94 to 1.12.
Comparable Merger Transactions Analysis. Using publicly available and other
information, Merrill Lynch reviewed eleven transactions announced between
June, 1987 and October, 1995 involving the merger of selected comparable
companies (the "Comparable Merger Transactions"). The Comparable Merger
Transactions and the date each transaction was announced are as follows:
Atmos' acquisition of Western Kentucky Gas Company
38
(June 1987), Consolidated Natural Gas Company's acquisition of Virginia
Natural Gas (June 1989), British Gas' acquisition of Consumers Gas Co. Ltd.
(March 1990), Arkla Inc.'s acquisition of Diversified Energies, Inc. (July
1990), New York Electric & Gas' acquisition of Columbia Gas of New York
(August 1990), Citizens Utilities Company's acquisition of Louisiana General
Services, Inc. (September 1990), NUI Corporation's acquisition of Pennsylvania
Enterprises, Inc. (December 1991), NIPSCO Industries, Inc.'s acquisition of
Kokomo Gas & Fuel Co. (February 1992), NIPSCO Industries, Inc.'s acquisition
of Northern Indiana Fuel & Light Company (November 1992), Atmos' acquisition
of Greeley Gas Company (March 1993) and Puget Sound Power & Light Company's
acquisition of Washington Energy Company (October 1995).
In order to determine an implied exchange ratio range based on Comparable
Merger Transactions analysis, Merrill Lynch (i) compared the offer value in
each of the Comparable Merger Transactions as a multiple of the then publicly
available (a) LTM net income to common shareholders (the "Net Income
Multiple") and (b) book value for the most recently available fiscal quarter
preceding such transaction (the "Book Value Multiple") and (ii) compared the
transaction value (defined to be the offer value plus the liquidation value of
preferred stock plus the principal amount of debt less cash) for each of the
Comparable Merger Transactions as a multiple of the then publicly available
(a) LTM EBITDA (the "EBITDA Multiple") and (b) LTM EBIT (the "EBIT Multiple"),
to the corresponding multiples for the Merger. The results of the foregoing
were: (i) the Net Income Multiple resulted in a range of implied exchange
ratios of 0.78 to 0.93, (ii) the Book Value Multiple resulted in a range of
implied exchange ratios of 0.95 to 1.19, (iii) the EBITDA Multiple resulted in
a range of implied exchange ratios of 0.80 to 0.99 and (iv) the EBIT Multiple
resulted in a range of implied exchange ratios of 0.55 to 0.88.
Utilizing the comparable merger transactions analysis, Merrill Lynch
calculated an implied exchange ratio range of 0.80 to 1.15.
Comparable Company Trading Analysis. Using publicly available information,
Merrill Lynch compared certain financial and operating information and ratios
(as described below) for Atmos and United Cities with corresponding financial
and operating information and ratios for a group of publicly-traded companies
that Merrill Lynch deemed to be reasonably comparable to Atmos and United
Cities. The comparable companies included: Indiana Energy, Inc., New Jersey
Resources Corporation, NUI Corporation, Piedmont Natural Gas Company, Inc.,
Southeastern Michigan Gas Enterprises, Inc., Southern Union Company, WICOR,
Inc. and Yankee Energy System, Inc. (collectively, the "Comparable
Companies"). Merrill Lynch selected the Comparable Companies from the universe
of possible comparable companies based upon Merrill Lynch's views as to the
comparability of financial and operating characteristics of these companies to
Atmos and United Cities.
In order to determine an implied exchange ratio range based upon an analysis
of comparable publicly traded companies, Merrill Lynch compared the market
value of Atmos Stock and United Cities Stock as a multiple of (i) estimated
1996 earnings per share ("EPS"), which estimates were obtained from Zack's
(the "1996 EPS Ratio"), (ii) estimated 1997 EPS, which estimates were obtained
from Zack's (the "1997 EPS Ratio") and (iii) book value of common equity as of
March 31, 1996, the most recently available fiscal quarter (the "Common Equity
Ratio"), to the corresponding ratios for each of the Comparable Companies.
Zack's is a data service which monitors and publishes a compilation of
earnings estimates produced by selected research analysts. The results of the
foregoing were as follows: for United Cities Stock (i) the 1996 EPS Ratio
resulted in a range of implied exchange ratios of 0.78 to 0.93; (ii) the 1997
EPS Ratio resulted in a range of implied exchange ratios of 0.71 to 0.87; and
(iii) the Common Equity Ratio resulted in a range of implied exchange ratios
of 0.76 to 0.86. Additionally, Merrill Lynch compared the market
capitalization of Atmos and United Cities as a multiple of LTM EBITDA (the
"LTM EBITDA Ratio") and LTM EBIT (the "LTM EBIT Ratio") to the corresponding
ratios for each of the Comparable Companies. The results of the foregoing were
as follows: (i) the LTM EBITDA Ratio resulted in a range of implied exchange
ratios of 0.52 to 0.90; and (ii) the LTM EBIT Ratio resulted in a range of
implied exchange ratios of 0.55 to 0.87.
Utilizing the foregoing analysis, Merrill Lynch calculated an implied
exchange ratio range of 0.75 to 0.90.
Discounted Cash Flow Analysis. In order to determine an implied exchange
ratio range based upon discounted cash flow analysis ("DCF Analysis"), Merrill
Lynch performed DCF Analyses for each of Atmos
39
and United Cities using projections provided to Merrill Lynch by the
respective managements of Atmos and United Cities and calculated ranges of
value for United Cities Stock and Atmos Stock.
The Atmos and United Cities DCF Analyses were based upon the discount to
present value, assuming discount rates ranging from 9% to 12%, of (i) their
respective projected free cash flows for the years 1997 through 2006 and (ii)
their respective 2006 value based upon a range of multiples for United Cities
from 12.0x to 15.0x projected 2006 net income and for Atmos from 13.0x to
15.0x projected 2006 net income. Based on these analyses, Merrill Lynch
calculated a range of value for United Cities Stock of $212.7 million to
$295.0 million and for Atmos Stock of $220.9 million to $307.4 million.
Utilizing DCF Analysis, Merrill Lynch calculated an implied exchange ratio
range of 1.05 to 1.12.
Merger Premium Analysis. In order to determine an implied exchange ratio
range based upon merger premium analysis ("Merger Premium Analysis"), Merrill
Lynch examined the premiums paid for target company shares in certain mergers
over the pre-announcement stock prices of such target companies and calculated
ranges of value for United Cities Stock and Atmos Stock.
Merrill Lynch examined premiums paid over pre-announcement stock prices one
day prior to announcement, one week prior to announcement and four weeks prior
to announcement (i) in all public merger transactions between $300 million and
$600 million for the periods 1994 to present, 1995 to present and 1996 to
present; (ii) eleven selected electric utility transactions; and (iii) four
selected natural gas transactions. In the aggregate, such examinations
indicated a range of merger premiums of between 20.0% and 40.0% to be
indicative. Merrill Lynch applied such range to the market price of United
Cities Stock and calculated an implied exchange ratio range of 0.79 to 0.91.
Pro Forma Analysis. Merrill Lynch also analyzed certain pro forma effects
resulting from the Merger, including the potential impact on earnings per
share of Atmos Stock. Using the projected earnings for the years 1997 through
2000 provided by the respective managements of Atmos and United Cities,
Merrill Lynch compared the projected earnings per share of Atmos on a stand-
alone basis assuming the Merger does not occur to the earnings per share of
Atmos Stock assuming the Exchange Ratio of 1.00 and certain estimated
synergies that Atmos management expects to achieve as a result of the Merger.
The analysis indicated that the Merger would be accretive/(dilutive) to (i)
the projected earnings per share of Atmos Stock in amounts of (11.6%) in 1997,
5.2% in 1998, 8.2% in 1999 and 12.1% in 2000 and (ii) the projected EBITDA per
share of Atmos Stock in amounts of (5.4%) in 1997, 2.6% in 1998, 2.1% in 1999
and 1.4% in 2000.
The summary set forth above does not purport to be a complete description of
the analyses performed by Merrill Lynch in arriving at its opinion. The
preparation of a fairness opinion is a complex process not necessarily
susceptible to partial or summary description. Although certain of the implied
exchange ratios calculated as described above are outside of the Exchange
Ratio, Merrill Lynch believes that its analyses must be considered as a whole
and that selecting portions of its analyses and of the factors considered by
it, without considering all such factors and analyses, could create a
misleading view of the process underlying its analyses set forth in the
Merrill Lynch opinion. No company in the Comparable Companies is identical to
Atmos or United Cities, and none of the Comparable Merger Transactions or the
transactions considered in the Merger Premium Analysis is identical to the
Merger. Accordingly, an analysis of comparable publicly traded companies and
comparable acquisition transactions is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the Comparable Companies, the terms of and
parties to the Comparable Merger Transactions and the transactions considered
in the Merger Premium Analysis and other factors.
Merrill Lynch confirmed, as of the date of this Joint Proxy
Statement/Prospectus, its opinion of July 19, 1996, that the Exchange Ratio
was fair to Atmos from a financial point of view. In rendering such opinion,
Merrill Lynch performed procedures to update certain of its analyses made in
connection with its July 19, 1996
40
opinion and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith.
The Atmos Board of Directors selected Merrill Lynch to render a fairness
opinion because Merrill Lynch is an internationally recognized investment
banking firm with substantial experience in transactions similar to the Merger
and because it is familiar with Atmos and its business. As part of its
investment banking business, Merrill Lynch is continually engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions.
Pursuant to the terms of an engagement letter dated July 15, 1996, Atmos
paid Merrill Lynch $100,000 and has agreed to pay Merrill Lynch an additional
$2,400,000 upon closing of the Merger and to reimburse Merrill Lynch for its
reasonable out-of-pocket expenses, including all reasonable fees and
disbursements of its legal counsel, and to indemnify Merrill Lynch and certain
related persons against certain liabilities in connection with its engagement,
including certain liabilities under the federal securities laws.
Merrill Lynch may provide financial advisory services to, and may act as
underwriter or placement agent for, the combined company in the future. In the
ordinary course of Merrill Lynch's business, Merrill Lynch may actively trade
the securities of Atmos and United Cities for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
OPINION OF UNITED CITIES' FINANCIAL ADVISOR
THE FULL TEXT OF THE OPINION OF PAINEWEBBER DATED AS OF THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN, IS ATTACHED AS EXHIBIT C TO THIS JOINT PROXY STATEMENT/PROSPECTUS.
UNITED CITIES SHAREHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY AND IN ITS
ENTIRETY. THE SUMMARY OF THE PAINEWEBBER OPINION SET FORTH IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
United Cities retained PaineWebber as its financial advisor in connection
with the Merger. In connection with such engagement, United Cities requested
PaineWebber to render an opinion as to whether or not the Exchange Ratio
offered by Atmos is fair to the holders of United Cities Stock from a
financial point of view. PaineWebber was not requested to, and did not
determine, the Exchange Ratio to be provided for in the Merger, which Exchange
Ratio was determined through arm's-length negotiations between United Cities
and Atmos.
In connection with the United Cities Board of Directors' consideration of
the Merger Agreement, PaineWebber delivered a written opinion on July 19,
1996, which was reaffirmed as of the date of this Joint Proxy
Statement/Prospectus (the "PaineWebber Opinion"), to the effect that, as of
the date of the PaineWebber Opinion, and based on its review and assumptions
and subject to the limitations summarized below, the Exchange Ratio is fair to
the holders of United Cities Stock from a financial point of view. In
connection with the reaffirmation of the PaineWebber Opinion, as of the date
of this Joint Proxy Statement/Prospectus, PaineWebber performed certain
procedures to update certain of its analyses and reviewed the assumptions on
which such analyses were based and the factors considered in connection
therewith. The PaineWebber Opinion was prepared at the request and for the
information of the Board of Directors of United Cities and does not constitute
a recommendation to any holder of United Cities Stock as to how any such
shareholder should vote with respect to the Merger. The PaineWebber Opinion
does not address the relative merits of the Merger and any other transactions
or business strategies discussed by the Board of Directors of United Cities as
alternatives to the Merger or the decision of the Board of Directors of United
Cities to proceed with the Merger. PaineWebber was not requested or authorized
to solicit, and did not solicit, potential purchasers of United Cities. United
Cities did not place any limitations upon PaineWebber with respect to the
procedures followed or factors considered in rendering the PaineWebber
Opinion.
In arriving at its opinion, PaineWebber, among other things: (i) reviewed,
among other public information, United Cities' Annual Reports, Forms 10-K and
related financial information for the four fiscal years ended December 31,
1995 and United Cities' Form 10-Q and the related unaudited financial
information for the six
41
months ended June 30, 1996; (ii) reviewed, among other public information,
Atmos' Annual Reports, Forms 10-K and related financial information for the
four fiscal years ended September 30, 1995 and Atmos' Form 10-Q and the
related unaudited financial information for the nine months ended June 30,
1996; (iii) reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flows, assets and prospects of United
Cities and Atmos, furnished to PaineWebber by United Cities and Atmos,
respectively; (iv) conducted discussions with members of senior management of
United Cities and Atmos concerning their respective businesses and prospects;
(v) reviewed the historical market prices and trading activity for United
Cities Stock and Atmos Stock and compared such prices and trading histories
with those of certain other publicly traded companies which PaineWebber deemed
to be relevant; (vi) compared the financial position and operating results of
United Cities and Atmos with that of certain publicly traded companies which
PaineWebber deemed to be relevant; (vii) compared the financial terms of the
Merger with the financial terms of certain other business combinations which
PaineWebber deemed to be relevant; (viii) considered the potential pro forma
effects of the Merger on Atmos; (ix) reviewed the Merger Agreement dated July
19, 1996 and Amendment No. 1 thereto dated October 3, 1996; and (x) reviewed
such other financial studies and analyses and performed such other
investigations and took into account such other matters as PaineWebber deemed
necessary including PaineWebber's assessment of regulatory, general economic,
market and monetary conditions.
In preparing the PaineWebber Opinion, PaineWebber relied on the accuracy and
completeness of all information that was publicly available, supplied or
otherwise communicated to PaineWebber by United Cities and Atmos and
PaineWebber has not independently verified the same. PaineWebber has assumed
that the financial forecasts examined by it were reasonably prepared on bases
reflecting the best currently available estimates and good faith judgments of
the management of United Cities and Atmos as to the future performance of
United Cities and Atmos, respectively. PaineWebber has also relied upon
assurances of the management of United Cities and Atmos that they are unaware
of any facts that would make the information or financial forecasts provided
to PaineWebber incomplete or misleading. PaineWebber has also assumed, with
the consent of United Cities, that (i) the Merger will be accounted for under
the pooling of interests method of accounting; (ii) the Merger will be a tax-
free reorganization; and (iii) any material liabilities (contingent or
otherwise, known or unknown) of United Cities and Atmos are as set forth in
the consolidated financial statements of United Cities and Atmos,
respectively. PaineWebber has not made an independent evaluation or appraisal
of the assets or liabilities (contingent or otherwise) of United Cities or
Atmos, nor has PaineWebber been furnished with any such evaluations or
appraisals. The PaineWebber Opinion is based upon regulatory, economic,
monetary and market conditions existing on the date thereof. Furthermore,
PaineWebber expresses no opinion as to the price or trading range at which the
shares of Atmos Stock will trade in the future.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant quantitative methods of financial analyses
and the application of those methods to the particular circumstances and,
therefore, such an opinion is not readily susceptible to partial analysis or
summary description. Accordingly, PaineWebber believes that its analysis must
be considered as a whole and that considering any portion of such analysis and
of the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the
PaineWebber Opinion. In its analyses, PaineWebber made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of United Cities and
Atmos. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth therein. In
addition, analyses relating to the value of businesses do not purport to be
appraisals or to reflect the prices at which businesses may actually be sold.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty and neither United Cities nor PaineWebber assume responsibility
for the accuracy of such analyses and estimates.
The following paragraphs summarize the significant analyses performed by
PaineWebber in arriving at the PaineWebber Opinion.
Stock Trading History. PaineWebber reviewed the history of the trading
prices and volume for the United Cities Stock and the Atmos Stock, both
separately and in relation to market indices and a comparable company index.
The market indices were (i) the Standard & Poor's 400 Index and (ii) the
Standard & Poor's 40 Utilities
42
Index. The comparable company index included fourteen gas distribution utility
companies: Bay State Gas Company; Connecticut Energy Corporation; Connecticut
Natural Gas Corporation; Energen Corporation; Indiana Energy, Inc.; Laclede
Gas Company; New Jersey Resources Corporation; NUI Corporation; Northwest
Natural Gas Company; Public Service Company of North Carolina, Incorporated;
Piedmont Natural Gas Company, Inc.; South Jersey Industries, Inc.; Southwest
Gas Corporation; and Yankee Energy System, Inc. (collectively, the "Comparable
Companies"). PaineWebber noted that there are no directly comparable companies
to Atmos or United Cities. In addition, PaineWebber reviewed the historical
implied exchange ratio between United Cities Stock and Atmos Stock and
compared this to the Exchange Ratio. PaineWebber noted that the historical
implied exchange ratio consistently fell below the Exchange Ratio.
Selected Comparable Public Company Analysis. Using publicly available
information, PaineWebber compared selected historical and projected financial,
operating and stock market performance data of United Cities and Atmos to the
corresponding data of the Comparable Companies.
With respect to United Cities and the Comparable Companies, PaineWebber
compared multiples of total enterprise value (market value plus total debt
less cash and cash equivalents) to latest twelve month ("LTM") earnings before
interest and taxes ("EBIT"). PaineWebber also compared multiples of market
value to LTM net income, LTM cash flow from operations (net income plus
depreciation and amortization) ("CFFO"), book value of equity and estimated
1996 and 1997 net income (adjusted to reflect a December year end) as
estimated by First Call research earnings estimates. United Cities' LTM ended
March 31, 1996 multiples of LTM EBIT, LTM net income, LTM CFFO, book value of
equity and estimated 1996 and 1997 net income as of July 17, 1996 were 10.3x,
15.1x, 6.3x, 1.4x, 12.9x and 12.1x, respectively. As of July 17, 1996, the
Comparable Companies' median multiples of LTM EBIT, LTM net income, LTM CFFO,
book value of equity and estimated 1996 and 1997 net income were 9.4x, 12.3x,
6.3x, 1.4x, 14.1x and 12.6x, respectively. PaineWebber applied the Comparable
Companies' median multiples to United Cities' LTM EBIT, LTM net income, LTM
CFFO, book value of equity and estimated 1996 and 1997 net income (both as
estimated by First Call research earnings estimates and United Cities
management). Using the foregoing analysis, PaineWebber calculated an implied
exchange ratio range of 0.58x to 0.74x. PaineWebber noted that the Exchange
Ratio fell above this range.
With respect to Atmos and the Comparable Companies, PaineWebber compared
multiples of total enterprise value (market value plus total debt less cash
and cash equivalents) to LTM EBIT. PaineWebber also compared multiples of
market value to LTM net income, LTM CFFO, book value of equity and estimated
1996 and 1997 net income (adjusted to reflect a December year end) as
estimated by First Call research earnings estimates. Atmos' LTM ended March
31, 1996 multiples of LTM EBIT, LTM net income, LTM CFFO, book value of equity
and estimated 1996 and 1997 net income as of July 17, 1996 were 10.5x, 15.8x,
8.7x, 2.3x, 19.6x and 16.1x, respectively. As of July 17, 1996, the Comparable
Companies' median multiples of LTM EBIT, LTM net income, LTM CFFO, book value
of equity and estimated 1996 and 1997 net income were 9.4x, 12.3, 6.3x, 1.4x,
14.1x and 12.6x, respectively. PaineWebber noted that Atmos was currently
trading at the high end of the multiple range for the Comparable Companies but
also noted that this has historically been the case. PaineWebber noted that
since July 17, 1993 (the last three years) Atmos' weekly multiple of stock
price to earnings per share ("P/E multiple") has exceeded the Comparable
Companies' P/E multiple by a median 13.9% (the "Premium"). PaineWebber applied
the Premium to the Comparable Companies' median multiples of LTM EBIT, LTM net
income, LTM CFFO, book value of equity and estimated 1996 and 1997 net income
to calculate multiples of 10.7x, 14.0x, 7.2x, 1.6x, 16.0x and 14.4x,
respectively (collectively, the "Adjusted Multiples"). PaineWebber applied the
Adjusted Multiples to Atmos' LTM EBIT, LTM net income, LTM CFFO, book value of
equity and estimated 1996 and 1997 net income (both as estimated by First Call
research earnings estimates and Atmos management) and derived a range of
fully-diluted equity values. PaineWebber noted that Atmos' closing stock price
on July 17, 1996 fell within this range.
Selected Comparable Mergers and Acquisitions Analysis. PaineWebber reviewed
publicly available financial information for selected mergers and acquisitions
involving target companies in the gas distribution utility business. The
selected mergers and acquisitions PaineWebber analyzed included
(acquirer/target): Texas
43
Utilities Company/Enserch Corporation; Puget Sound Power & Light
Company/Washington Energy Company; Atmos Energy Corporation/Greeley Gas
Company; NIPSCO Industries, Inc./North Indiana Fuel and Light Company; Arkla,
Inc./Diversified Energies, Inc.; and Citizens Utilities Company/Louisiana
General Services, Inc. (collectively, the "Comparable Transactions").
PaineWebber noted that there are no directly comparable transactions to the
Transaction.
PaineWebber reviewed the consideration paid (based on stock prices on the
day prior to the announcement of the transaction) in the Comparable
Transactions and compared multiples of total enterprise value to the target's
LTM (latest twelve months prior to the announcement of the transaction) EBIT.
PaineWebber also reviewed multiples of market value to the target's LTM net
income, LTM CFFO and book value of equity. In addition, PaineWebber compared
purchase price per share premiums to historical target stock prices one week
prior to the announcement of the transaction. PaineWebber calculated the
Comparable Transactions' median multiples of EBIT, LTM net income, LTM CFFO
and book value of equity and the Comparable Transactions' median one week
purchase price per share premium to be 14.7x, 20.4x, 9.0x, 2.4x and 29.1%,
respectively. PaineWebber applied the Comparable Transactions' median
multiples and one week purchase price per share premium to United Cities' LTM
EBIT, LTM net income, LTM CFFO, book value of equity and closing stock price
on July 17, 1996. Using the foregoing analysis, PaineWebber calculated an
implied exchange ratio range of 0.85x to 1.17x. PaineWebber noted that the
Exchange Ratio fell within this range.
Contribution Analysis. PaineWebber analyzed United Cities' and Atmos'
relative contribution to the combined entity with respect to LTM revenue,
earnings before interest, taxes, depreciation and amortization ("EBITDA"),
EBIT, net income and CFFO. PaineWebber also analyzed the relative contribution
of balance sheet items as of March 31, 1996 including: total assets, book
value of equity and total debt. Based on the Exchange Ratio, holders of United
Cities Stock will own approximately 44.8% of the combined company's equity.
United Cities is projected to contribute to revenue, EBITDA, EBIT, net income,
CFFO, total assets, book value of equity and total debt, 42.7%, 43.1%, 40.5%,
35.8%, 42.4%, 47.9%, 47.1% and 53.4%, respectively. The results of this
contribution analysis are not necessarily indicative of the contributions that
the respective businesses may have in the future.
Discounted Cash Flow Analysis. PaineWebber analyzed United Cities based on
an unleveraged discounted cash flow analysis of the projected financial
performance of United Cities. Such projected financial performance was based
upon a five-year forecast for United Cities provided by United Cities
management. The discounted cash flow analysis determined the discounted
present value of the unleveraged after-tax cash flows generated over the five-
year period and then added a terminal value based upon a range of EBIT
multiples from 9.0x to 10.5x. The unleveraged after-tax cash flows and
terminal value were discounted using a range of discount rates from 7.5% to
9.0%. Using the foregoing analysis, PaineWebber calculated an implied exchange
ratio range of 0.66x to 0.82x. PaineWebber noted that the Exchange Ratio fell
above this range.
Premiums Paid Analysis. PaineWebber analyzed purchase price per share
premiums paid in selected publicly disclosed transactions in all industries
with transaction values greater than $100 million announced since June 1,
1994. This analysis indicated mean premiums to the target's closing stock
price one day, one week and four weeks prior to the announcement of the
transaction of 28.9%, 32.7% and 37.6%. This analysis also indicated median
premiums to the target's closing stock price one day, one week and four weeks
prior to the announcement of the transaction of 25.1%, 27.7% and 35.3%. Using
the foregoing analysis, PaineWebber calculated an implied exchange ratio range
of 0.74x to 0.85x. PaineWebber noted that the Exchange Ratio fell above this
range.
Pro Forma Merger Analysis. PaineWebber performed an analysis of the
potential pro forma effect of the Merger on Atmos' earnings per share ("EPS")
for the fiscal years ending 1996 through 2000. In performing this analysis,
PaineWebber assumed (i) the Merger will provide one share of Atmos Stock in
exchange for each share of United Cities Stock; (ii) the Merger would be
accounted for under the pooling of interests method of accounting; and (iii)
no cost savings would be achieved. PaineWebber combined the projected
operating results of United Cities (provided by United Cities management) with
the corresponding projected operating results of
44
Atmos (provided by Atmos management) to arrive at the combined company
projected net income. PaineWebber divided this by the pro forma shares
outstanding to arrive at a combined company EPS. PaineWebber then compared the
combined company EPS to Atmos' projected stand-alone EPS (provided by Atmos
management) to determine the pro forma impact on Atmos' EPS. This analysis
suggested that the Merger should result in slight dilution to Atmos' EPS in
1996 and should result in accretion to Atmos' EPS thereafter.
United Cities selected PaineWebber to be its financial advisor in connection
with the Merger because PaineWebber is a prominent investment banking and
financial advisory firm with experience in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
Pursuant to an engagement letter between United Cities and PaineWebber dated
July 12, 1996, PaineWebber has earned a retention fee of $100,000 and a fee of
$500,000 for the rendering of the PaineWebber Opinion. In addition,
PaineWebber will receive a fee, payable upon completion of the Merger, equal
to $1,400,000 and will be reimbursed for certain of its related expenses.
PaineWebber will not be entitled to any additional fees or compensation in the
event the Merger is not approved or otherwise consummated. United Cities also
agreed, under separate agreement, to indemnify PaineWebber, its affiliates and
each of its directors, officers, agents and employees and each person, if any,
controlling PaineWebber or any of its affiliates against certain liabilities,
including liabilities under federal securities laws.
In the past, PaineWebber and its affiliates have provided financial advisory
services and financing services for United Cities, including acting as lead
manager in connection with a public offering of United Cities Stock in June
1995, and have received fees for the rendering of these services. PaineWebber
may provide financial advisory services to, and may act as underwriter or
placement agent for, the combined company in the future. In the ordinary
course of PaineWebber's business, PaineWebber may actively trade the
securities of United Cities and Atmos for its own account and for the accounts
of its customers and, accordingly, may at any time hold long or short
positions in such securities.
Mr. Phillip E. Nichol, a director of Atmos, is a Senior Vice President and
Branch Manager of PaineWebber in Cleveland, Ohio. Mr. Nichol has had no
involvement in the Merger transaction on behalf of PaineWebber.
THE REORGANIZATION AGREEMENT AND THE MERGER
GENERAL
The Boards of Directors of Atmos and United Cities, meeting separately, each
authorized the execution, delivery and performance of the Reorganization
Agreement on July 19, 1996, and the amendment thereof on October 3, 1996. The
following summary of the material terms of the Reorganization Agreement is
qualified in its entirety by reference to the Reorganization Agreement, a copy
of which is attached (together with the form of the Plan of Merger attached as
an exhibit to the Reorganization Agreement) to this Joint Proxy
Statement/Prospectus as Exhibit A, and the Reorganization Agreement and the
Plan of Merger are incorporated herein by reference.
EFFECTIVE TIME; EFFECT OF MERGER
If the Reorganization Agreement, the Plan of Merger and the Merger are
approved by the requisite vote of the shareholders of Atmos and United Cities
and if all other conditions to the obligations of the parties to consummate
the Merger are satisfied or waived, the Merger will become effective at a date
to be specified in filings to be made with the Secretaries of State of Texas
and Illinois and the State Corporation Commission of the Commonwealth of
Virginia in accordance with the applicable provisions of the TBCA, the IBCA
and the VSCA. As of the Effective Time, United Cities will be merged with and
into Atmos, which will be the surviving corporation in the Merger, and United
Cities' separate corporate existence will terminate. At the Effective Time,
all of the assets and liabilities of United Cities will be transferred to and
assumed by Atmos. At the Effective Time, Atmos will be a corporation
incorporated under the laws of Texas and Virginia and be subject to the
corporation laws of each such state.
45
CONVERSION OF SHARES; FRACTIONAL SHARES
At the Effective Time, each share of United Cities Stock outstanding prior
to the Effective Time will be converted into the right to receive one share of
Atmos Stock, subject to the dissenters' rights of shareholders of United
Cities. See "The Reorganization Agreement and The Merger--Dissenters' Rights."
No fractional shares of Atmos Stock will be issued in the Merger. In lieu of
any such fractional share, each United Cities shareholder who would otherwise
have been entitled to a fraction of a share of Atmos Stock upon surrender of a
certificate formerly representing shares of United Cities Stock will be
entitled to receive, without interest, a cash amount determined by multiplying
such fraction by the average of the closing sale prices for a share of Atmos
Stock for the five business days prior to the Effective Time. Each share of
Atmos Stock issued to United Cities shareholders in the Merger will have
attached one right under the Atmos Rights Plan (as defined herein). See
"Comparison of Shareholder Rights--Anti-Takeover Provisions."
EXCHANGE OF CERTIFICATES
Except with respect to shares of United Cities Stock as to which dissenters'
rights of appraisal have been exercised and not subsequently lost, The First
National Bank of Boston will, after the Effective Time, issue to each holder
of a certificate formerly representing shares of United Cities Stock, upon the
surrender thereof, a certificate representing the number of shares of Atmos
Stock into which the shares of United Cities Stock represented by the
surrendered certificate were converted. The surrendered certificates will be
canceled. Until so surrendered and exchanged, each such certificate that prior
to the Effective Time represented shares of United Cities Stock will represent
only the right to receive a certificate representing shares of Atmos Stock
pursuant to the Merger. After the Effective Time, there will be no transfers
on the stock transfer books of United Cities.
No dividends or other distributions declared after the Effective Time with
respect to shares of Atmos Stock will be paid to the holder of any
unsurrendered United Cities Stock certificate. Upon and after such surrender,
Atmos will pay to the record holder thereof, without interest, the amount of
any dividend or distribution, the record date for the payment of which was
after the Effective Time, that has not previously been paid to such holder.
TREATMENT OF UNITED CITIES OPTIONS
Following the Effective Time, Atmos will continue in effect the United
Cities Stock Plan. Holders of options under the United Cities Stock Plan will,
after the Effective Time, be allowed to exercise their options for shares of
Atmos Stock at the Exchange Ratio. Holders of stock appreciation rights under
the United Cities Stock Plan will also be allowed to exercise such rights
based on the price of Atmos Stock. Atmos does not anticipate making any
additional grants after the Merger under the United Cities Stock Plan. See
"The Reorganization Agreement and The Merger--Interests of Certain Persons in
the Merger" and "United Cities Stock Plan."
DIRECTORS AND OFFICERS
At the Effective Time, the number of directors of Atmos will be set by the
Plan of Merger at 15 and thereafter may be changed in the manner provided in
Atmos' Bylaws. The directors of Atmos following the Effective Time will be the
11 directors of Atmos in office at the Effective Time and the United Cities
Designees, each of whom currently is a director of United Cities. Each of the
Atmos directors in office immediately prior to the Effective Time will
continue to serve in the class and for the term he was serving at the
Effective Time. Mr. Koonce and Mr. Lewis will become directors in Class I with
terms expiring in 1999; Mr. Cardin will become a director in Class II with a
term expiring in 1997 if the Merger is consummated prior to the annual meeting
of shareholders of Atmos scheduled to be held on February 12, 1997, and if
not, for a term expiring in 2000; and Mr. Garland will become a director in
Class III with a term expiring in 1998. See "Incorporation of Certain
Information by Reference," "The Reorganization Agreement and The Merger--
Election of Directors," and "--Interests of Certain Persons in the Merger" and
"Management of Atmos Following the Merger."
46
The officers of Atmos in office at the Effective Time will remain as the
officers of Atmos following the Effective Time, and three United Cities
officers will become officers of Atmos. See "Incorporation of Certain
Information by Reference," "The Reorganization Agreement and the Merger--
Interests of Certain Persons in the Merger" and "Management of Atmos Following
the Merger."
CHARTER AND BYLAWS; EFFECT OF DUAL INCORPORATION
The rights of United Cities' shareholders are currently governed by Illinois
and Virginia law and by United Cities' Articles of Incorporation and Bylaws.
The rights of Atmos' shareholders are currently governed by Texas law and by
Atmos' Restated Articles of Incorporation and Bylaws. Upon the Merger becoming
effective, United Cities' shareholders will become, and Atmos' shareholders
will remain, shareholders of Atmos, and Atmos will become a corporation
incorporated in Texas and Virginia and be subject to the corporation laws of
each such state. The rights of Atmos' shareholders after the Merger will be
governed by Texas and Virginia law and by Atmos' Restated Articles of
Incorporation (which will be amended in certain respects to conform to
Virginia law) and Bylaws. Atmos is incorporating in the Commonwealth of
Virginia in order to comply with a Virginia statute requiring utilities
operating in Virginia to be incorporated under the laws of that state. The
amendments to the Restated Articles of Incorporation are being adopted in
order to comply with the VSCA, which requires that certain items be stated in
a Virginia corporation's articles of incorporation, which under Texas law are
not currently required to be stated in Atmos' Restated Articles of
Incorporation or are stated in its Bylaws. None of these amendments will
result in a substantive change to Atmos' method of corporate governance. After
the Effective Time, in the event differences arise under the laws of Texas and
Virginia with respect to any particular matter, the law of the state providing
the greater protection to Atmos shareholders following the Merger, requiring
the higher level of compliance by Atmos or requiring the higher vote of
shareholders will generally govern. See "Comparison of Shareholder Rights."
Pursuant to the Plan of Merger, the Restated Articles of Incorporation of
Atmos will be amended to provide (i) that Atmos will be incorporated under the
laws of the State of Texas and the Commonwealth of Virginia, (ii) that the
purpose for which the corporation is organized is the transaction of any or
all lawful business for which corporations may be incorporated under the TBCA,
including, but not limited to, the transportation and distribution of natural
gas by pipeline as a public utility, except that with respect to the
Commonwealth of Virginia, the corporation may only conduct such business as is
permitted to be conducted by a public service company engaged in the
transportation and distribution of natural gas by pipeline, (iii) for the
elimination or limitation of the personal liability of a director to the
fullest extent permitted by both the TBCA and the VSCA, as the same may be
amended from time to time, (iv) for a classified board, (v) that the payment
of dividends on Atmos Stock is subject to the statutory limitations of the
TBCA and the VSCA and (vi) for a registered agent and registered office in
Virginia. See "Comparison of Shareholders Rights." For the text of the
proposed amendments, see the Plan of Merger attached as an exhibit to the
Reorganization Agreement.
The Bylaws of Atmos will not be amended under the Plan of Merger and will
remain in effect in their present form until subsequently amended. It is
contemplated that some time after the Effective Time the Bylaws of Atmos will
be amended by Atmos' Board of Directors in certain respects to conform to
Virginia law. Some of the significant amendments to the Bylaws of Atmos which
may be made include amendments to (i) increase the minimum notice period for
shareholder meetings to consider and vote on certain extraordinary corporate
transactions, (ii) provide that any director elected by the board to fill a
vacancy can serve only until the next shareholders meeting at which directors
are elected, (iii) limit the ability of the board to increase its size to an
increase of no more than 30% between meetings of shareholders and (iv) provide
for the greater delegation of authority to committees of the board.
CONDITIONS TO THE MERGER
The obligations of each of Atmos and United Cities to consummate the Merger
are subject to, among other things, the following conditions: (a) the approval
of the issuance of the Atmos Stock by the requisite vote of the shareholders
of Atmos and the approval of the Merger by the requisite votes of the
shareholders of Atmos and
47
United Cities; (b) the effectiveness of the Registration Statement, the
effectiveness of registration under or exemption from any applicable state
securities laws and the listing on the NYSE of the Atmos Stock to be issued to
United Cities' shareholders upon consummation of the Merger; (c) the receipt
of all necessary approvals of the state public utility commissions for which
approvals are required and, in the case of United Cities, the Federal Energy
Regulatory Commission, without any conditions which in the reasonable judgment
of Atmos would result in a material adverse change in the business,
operations, properties, condition (financial or otherwise), assets or
liabilities of either United Cities and its subsidiaries, taken as a whole, or
Atmos and its subsidiaries, taken as a whole; (d) the expiration or
termination of the waiting period applicable to the consummation of the Merger
under the HSR Act; (e) the receipt of all consents and waivers of third
parties required to be obtained under the Reorganization Agreement and the
transactions contemplated thereby other than consents and waivers the failure
to obtain which would not have a material adverse effect on Atmos or United
Cities, including all required consents, waivers and releases from each of
Atmos' and United Cities' lenders and creditors and from Woodward Marketing,
L.L.C. in a form and upon terms satisfactory to Atmos and United Cities (see
"The Reorganization Agreement and The Merger--Woodward Marketing, L.L.C.");
(f) the absence of any litigation or proceedings in which an unfavorable
injunction, order, judgment or ruling would prevent consummation of the Merger
or the other transactions contemplated by the Reorganization Agreement, cause
the rescission thereof, materially adversely affect the right of Atmos to own
and operate United Cities' businesses or the right of United Cities and its
subsidiaries to own and operate their businesses and the absence of any such
injunction, order, judgment or ruling; (g) the receipt of the written opinion
of Ernst & Young stating that Ernst & Young concurs in the accounting
treatment of the Merger as a pooling of interests; and (h) the receipt of
"comfort letters" from Ernst & Young and Arthur Andersen, dated immediately
prior to the effectiveness of the Registration Statement and as of a date not
more than five days prior to the Closing Date, covering certain financial
information contained in the Registration Statement.
In addition, Atmos' obligations to issue the Atmos Stock and to consummate
the Merger are subject to certain further conditions, including: (a) the
accuracy, as of the date of the Reorganization Agreement and the Closing Date,
in all material respects, of certain representations and warranties of United
Cities; (b) the accuracy, as of such dates, of certain other representations
and warranties of United Cities except where the failure of such
representations and warranties to be accurate would not have a Material (as
defined below) adverse effect on United Cities; (c) the compliance with and
performance of, in all material respects, all of the agreements and covenants
in the Reorganization Agreement to be complied with and performed by United
Cities at or prior to the Closing Date; (d) the non-occurrence of any change
Materially adverse to the business, operations, properties, condition
(financial or otherwise), assets or liabilities of United Cities or any of its
subsidiaries since the date of the Reorganization Agreement; (e) the non-
discovery of any fact, error, misstatement or omission materially adverse to
the business, operations, properties, conditions (financial or otherwise),
assets or liabilities of United Cities or any of its subsidiaries that has not
been disclosed to Atmos in the Reorganization Agreement disclosure schedules
and that would result in an adverse change that would be Material to United
Cities; (f) the receipt of a tax opinion from Atmos' counsel, Locke Purnell
Rain Harrell (A Professional Corporation), to the effect that the Merger will
qualify as a tax-free reorganization for federal income tax purposes within
the meaning of Section 368(a)(1)(A) of the Code; (g) the receipt of the
written opinion of Merrill Lynch, as of the date of this Joint Proxy
Statement/Prospectus, to the effect that the Exchange Ratio is fair to Atmos
from a financial point of view (such opinion is described in this Joint Proxy
Statement/Prospectus under the caption "Background of the Merger--Opinion of
Atmos' Financial Advisor," and a copy of such opinion appears as Exhibit B to
this Joint Proxy Statement/Prospectus); (h) the receipt of an opinion of
counsel to United Cities as to certain matters; and (i) the absence of written
objections to the Merger by the holders of 10% or more of the outstanding
shares of United Cities Stock pursuant to the provisions of the IBCA
respecting rights of dissenting shareholders. With respect to United Cities,
"Material" is defined as a reduction on a pro forma basis of $2,000,000 or
more in United Cities' consolidated net profit over any 12-month period or a
reduction on a pro forma basis of $12,500,000 or more in United Cities'
consolidated shareholders' equity as stated in its most recent audited balance
sheet, provided, however, that no amounts relating to certain environmental
matters arising prior to the end of an initial environmental review period are
includable in the foregoing calculations and further provided that no item
that would reduce net profit by less than $5,000 is includable therein.
48
In addition, United Cities' obligations to consummate the Merger are subject
to certain further conditions, including: (a) the accuracy, as of the date of
the Reorganization Agreement and the Effective Time, in all material aspects,
of certain representations and warranties of Atmos; (b) the accuracy, as of
such dates, of certain other representations and warranties of Atmos except
where the failure of such representations and warranties to be accurate would
not have a Material (as defined below) adverse effect on Atmos; (c) the
compliance with and performance of, in all material respects, all of the
agreements and covenants in the Reorganization Agreement to be complied with
and performed by Atmos at or prior to the Closing Date; (d) the non-occurrence
of any change Materially adverse to the business, operations, properties,
condition (financial or otherwise), assets or liabilities of Atmos or any of
its subsidiaries since the date of the Reorganization Agreement; (e) the non-
discovery of any fact, error, misstatement or omission materially adverse to
the business, operations, properties, conditions (financial or otherwise),
assets or liabilities of Atmos or any of its subsidiaries that has not been
disclosed to United Cities in the Reorganization Agreement disclosure
schedules and that would result in an adverse change that would be Material to
Atmos; (f) the receipt of a tax opinion from United Cities' counsel, Chapman
and Cutler, to the effect that the Merger will qualify as a tax-free
reorganization for federal income tax purposes within the meaning of Section
368(a)(1)(A) of the Code; (g) the receipt of the written opinion of
PaineWebber, as of the date of this Joint Proxy Statement/Prospectus, to the
effect that the Exchange Ratio is fair to the shareholders of United Cities
from a financial point of view (such opinion is described in this Joint Proxy
Statement/Prospectus under the caption, "Background of the Merger--Opinion of
United Cities' Financial Advisor," and a copy of such opinion appears as
Exhibit C to this Joint Proxy Statement/Prospectus); (h) the receipt of an
opinion of counsel to Atmos as to certain matters; and (i) the execution by
Atmos of employment contracts with Messrs. Gene C. Koonce, James B. Ford and
Thomas R. Blose, Jr. With respect to Atmos, "Material" is defined as a
reduction on a pro forma basis of $2,000,000 or more in Atmos' consolidated
net profit over any 12-month period or a reduction on a pro forma basis of
$12,500,000 or more in Atmos' consolidated shareholders' equity as stated in
its most recent audited balance sheet, provided, that no item that would
reduce net profit by less than $5,000 is includable therein.
Atmos has no obligation to consummate the Merger if any condition to its
obligations to consummate the Merger is not satisfied on or prior to the
Closing Date, and United Cities has no obligation to consummate the Merger if
any condition to its obligations to consummate the Merger is not satisfied on
or prior to the Closing Date. Any of the conditions to the obligations of
Atmos or United Cities to consummate the Merger may be waived by the party
that is, or whose shareholders are, entitled to the benefits thereof.
REPRESENTATIONS, WARRANTIES AND COVENANTS
Representations and Warranties. The Reorganization Agreement contains
various customary representations and warranties of each of Atmos and United
Cities, including representations and warranties as to (i) corporate
organization and status, (ii) capitalization, (iii) corporate authorization
and enforceability of the Reorganization Agreement, (iv) non-contravention of
charter, bylaws, law or agreements, (v) environmental matters, (vi) contracts,
(vii) completeness and accuracy of filings with the Commission, (viii)
financial statements and absence of undisclosed liabilities, (ix) absence of
certain changes, (x) absence of undisclosed litigation, (xi) title to and
condition of assets, (xii) intellectual property, (xiii) taxes, (xiv) employee
benefit plans and labor matters, (xv) accuracy of information provided for
inclusion in this Joint Proxy Statement/Prospectus, (xvi) insurance, (xvii)
brokers and finders, (xviii) absence of investment in the other party's stock,
(xix) recommendation of its board of directors, (xx) regulatory matters, (xxi)
vote required and (xxii) recommendation of its financial advisor.
Covenants. The Reorganization Agreement also includes customary covenants
and agreements of each of Atmos and United Cities, including covenants and
agreements as to (i) the conduct of business pending the Merger, (ii) access
to information, (iii) environmental matters, (iv) obtaining consents and
approvals, (v) convening shareholders meetings and solicitation of proxies,
(vi) cooperation in preparation of this Joint Proxy Statement/Prospectus and
the related Registration Statement, (vii) furnishing of monthly financial
statements,
49
(viii) the conduct of the Closing and the filing of necessary documents to
consummate the Merger, (ix) notification of breaches of representations,
warranties and covenants, (x) allocation of expenses, (xi) public
announcements and (xii) taking of additional action to implement the
Reorganization Agreement and effect the Merger.
In connection with the conduct of their respective businesses pending the
Merger, Atmos and United Cities have agreed, among other things, without the
prior written consent of the other party, not to issue, sell, encumber or
dispose of any capital stock, options, warrants, convertible securities or
other rights to acquire equity interests (except pursuant to existing employee
plans and other commitments) or any assets except in the ordinary course of
business, not to pay any dividends or other distributions except for regular
quarterly cash dividends consistent with past practice or acquire any other
business (except acquisitions by United Cities in which the consideration paid
by United Cities is $3,000,000 or less individually and $10,000,000 or less in
the aggregate and except acquisitions by Atmos in which the consideration paid
by Atmos is $10,000,000 or less individually and $20,000,000 or less in the
aggregate). Each of Atmos and United Cities has agreed not to purchase the
other party's shares. In addition, without the prior written consent of Atmos,
United Cities has agreed not to incur indebtedness for borrowed money or issue
debt securities, except for indebtedness in the ordinary course of business
under existing lines of credit and except for indebtedness issued under United
Cities' currently effective shelf registration statement in a principal amount
not exceeding $15,000,000 in the aggregate, not to authorize any capital
expenditures exceeding $500,000 for any single project or $30,000,000 in the
aggregate since July 1, 1996, not to increase the compensation payable to
officers and employees except increases in wages and salaries to non-officer
employees in accordance with past practices and not to grant severance or
termination pay or establish or fund any new employee plan or arrangement.
United Cities has also agreed not to settle any claim for shareholder
dissenters' rights with respect to the Merger without the prior written
consent of Atmos, to furnish certain information (and use all reasonable
efforts to obtain agreements of affiliates of United Cities) with respect to
Commission Rule 145 under the Securities Act and the requirements for pooling
of interests accounting treatment and to use its best efforts to obtain and
assign to Atmos a directors' and officers' liability insurance policy to be
effective for a period of five years with respect to matters involving United
Cities occurring prior to the Effective Time.
Atmos has also agreed to file and use all reasonable efforts to cause the
Registration Statement to become effective, to comply as necessary with
applicable state securities laws, to cause the shares of Atmos Stock to be
issued to United Cities' shareholders in the Merger to be listed on the NYSE,
to continue in effect the United Cities Stock Plan and the outstanding options
thereunder, to permit the exercise of options and stock appreciation rights
under the United Cities Stock Plan and to issue Atmos Stock or make cash
payments in respect thereof upon exercise and to keep in effect the
indemnification rights of former directors, officers, employees, fiduciaries
and agents of United Cities with respect to matters occurring prior to the
Effective Time.
Atmos Dividends. Under the Reorganization Agreement, Atmos has agreed to
cause to be declared and paid for a period of not less than four quarters,
commencing with the first regularly scheduled Atmos directors meeting
following the Merger, quarterly cash dividends at an annual rate of not less
than $1.02 per share, unless limited by applicable law or the fiduciary duty
of the Atmos directors as determined by Atmos and its counsel in their sole
discretion. This dividend is equal to the dividend paid by United Cities
immediately prior to execution of the Reorganization Agreement. It will
represent an annual increase of $.06 per share over the annual dividend paid
by Atmos during the fiscal year ended September 30, 1996.
Environmental Covenants. The Reorganization Agreement provides that Atmos
and United Cities shall within 60 days after the date of the Reorganization
Agreement mutually agree upon a site assessment and environmental compliance
audit of the real property currently used by United Cities and certain real
property formerly used by United Cities of a scope and conducted by an
engineer reasonably satisfactory to both parties. Mutual agreement was reached
within such 60-day period. Within 90 days after the end of such 60-day period,
50
United Cities is to cause the site assessment and audit to be prepared and
submitted to Atmos. The cost of the site assessment and audit will be borne by
United Cities.
AMENDMENT, TERMINATION AND WAIVER
The Reorganization Agreement may be amended by mutual agreement of the
Boards of Directors of Atmos and United Cities at any time prior to the
Closing Date, except that after the approval by the shareholders of either
Atmos or United Cities no amendment may be made which would increase or
decrease the amount or type of consideration into which the United Cities
Stock is to be converted in the Merger, alter any terms of the Plan of Merger
if such alteration would adversely affect the shares of any class or series of
United Cities, or alter any term of the articles of incorporation of United
Cities, and except that amendments to the Plan of Merger necessary to cause
Atmos to be a corporation incorporated in any state in which a regulatory
authority requires such incorporation and to reflect the Effective Time of the
Merger do not require any further approval by the respective boards of
directors, such approval already having been given. In addition, at any time
prior to the consummation of the Merger, the parties may waive inaccuracies in
representations and warranties or extend the time for performance of, or waive
compliance with, any of the agreements or conditions contained in the
Reorganization Agreement.
Notwithstanding the prior approval of the Merger by the shareholders of
Atmos and United Cities, the Reorganization Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time:
(a) by mutual written consent authorized by the Boards of Directors of
Atmos and United Cities;
(b) by either of the parties if the Merger is not consummated by March
31, 1997 or such later date as may be agreed to by the parties (except that
a party whose willful failure to fulfill any material obligation under the
Reorganization Agreement has been the cause of the failure of the Effective
Time to occur by that date may not exercise such right of termination);
(c) by Atmos, if the Board of Directors of United Cities has taken a
position recommending a Competing Transaction or whereby it fails to
recommend the Merger to the shareholders of United Cities;
(d) by Atmos or United Cities, if a court or federal or state regulatory
agency has issued an order or taken other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by the
Reorganization Agreement and such order or other action shall have become
final and nonappealable, provided that the party seeking to terminate the
Reorganization Agreement has used all reasonable efforts to remove such
order;
(e) by Atmos, if the shareholders of United Cities have not approved the
Merger, the Plan of Merger and the Reorganization Agreement at the United
Cities Shareholders Meeting;
(f) by United Cities, if the shareholders of Atmos have not approved the
Merger, the Plan of Merger, the Reorganization Agreement and the issuance
of the Atmos Stock to the United Cities shareholders at the Atmos
Shareholders Meeting;
(g) by Atmos, if there has occurred a material breach by United Cities of
certain of its representations and warranties or a breach of any of its
covenants or agreements contained in the Reorganization Agreement or the
Plan of Merger, or a breach by United Cities of any of its other
representations and warranties contained in the Reorganization Agreement or
the Plan of Merger that are Material to United Cities, if the same have not
been cured within 20 days after written notice of such breach has been
given by Atmos to United Cities;
(h) by United Cities, if there has occurred a material breach by Atmos of
certain of its representations and warranties or a breach of any of its
covenants or agreements contained in the Reorganization Agreement or the
Plan of Merger, or a breach by Atmos of any of its other representations
and warranties contained in the Reorganization Agreement or the Plan of
Merger that are Material to Atmos, if the same have not been cured within
20 days after written notice of such breach has been given by United Cities
to Atmos; or
51
(i) by United Cities, in the exercise of the United Cities Board of
Directors' fiduciary duties with respect to a Competing Transaction.
NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS; EFFECT OF
TERMINATION
The representations, warranties and agreements of the parties under the
Reorganization Agreement terminate at the Effective Time or upon termination
of the Reorganization Agreement in accordance with the termination provisions
thereof, except that the covenants of Atmos with respect to the treatment of
employees and employee benefits for employees of United Cities, the
declaration of dividends, the treatment of options and stock appreciation
rights under the United Cities Stock Plan and the provision of indemnification
to former directors and officers of United Cities, will survive the Merger,
and the covenants with respect to the payment of expenses and the termination
fee will survive the termination of the Reorganization Agreement.
The termination provisions of the Reorganization Agreement provide that upon
termination in accordance therewith, the Reorganization Agreement becomes void
and, except for (i) liability for any intentional or willful breach, (ii) the
payment of expenses and the termination fee and (iii) the obligations of the
parties under a confidentiality agreement between the parties and the
Standstill Agreement, neither party shall have any liability under the
Reorganization Agreement.
As a result of such termination provisions and the non-survival of the
representations, warranties, covenants and agreements contained in the
Reorganization Agreement (except as otherwise described herein) and because
United Cities will cease to exist as a separate entity following the Merger,
neither Atmos nor United Cities will have any contractual recourse against the
other for breaches of such representations, warranties, covenants and
agreements by the other party after the Effective Time or, except to the
limited extent set forth above, after termination.
NO-SOLICITATION COVENANT, FIDUCIARY DUTIES, TERMINATION FEE AND EXPENSES
United Cities has also agreed that it will not, except as discussed below,
initiate, solicit, encourage, provide information or assistance to, or take
any other action to facilitate, any inquiries concerning or the making or
implementation of, any proposal relating to, or that might reasonably be
expected to lead to, any Competing Transaction and that it will promptly
notify Atmos of certain information concerning any such Competing Transaction.
A "Competing Transaction" is (i) any merger, consolidation, share exchange,
business combination or similar transaction involving United Cities, (ii) any
sale, lease, exchange, mortgage, pledge, transfer or other disposition of 20%
or more of the assets of United Cities and its subsidiaries, (iii) any tender
offer or exchange offer for 20% or more of the United Cities Stock, (iv) the
acquisition of 20% or more of the United Cities Stock (or of rights to acquire
such stock) by any person or group or (v) any public announcement of any
proposal, plan or intention to do any of the foregoing or any agreement to do
any of the foregoing except as specifically provided in the Reorganization
Agreement for matters in the ordinary course of business.
Notwithstanding the foregoing, United Cities may (i) furnish information to,
or enter into negotiations with, any person or entity that makes an
unsolicited contact in connection with a bona fide Competing Transaction, if
and only to the extent that:
(A) the Board of Directors of United Cities determines in good faith, based
on, among other matters, the written advice of independent legal
counsel, that such action is required for the Board of Directors to
comply with its fiduciary duties to shareholders imposed by law;
52
(B) prior to United Cities furnishing any confidential information, such
other person or entity executes a confidentiality agreement with United
Cities in customary form and United Cities provides written notice to
Atmos that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity; and
(C) United Cities keeps Atmos reasonably informed of the status of any such
discussions or negotiations; or
(ii) take and disclose to shareholders of United Cities a position with
respect to any such Competing Transaction or the Merger that in the judgment
of the Board of Directors of United Cities, as determined in good faith based
on, among other matters, the written advice of independent legal counsel, is
required for the Board of Directors to comply with its fiduciary duty to
shareholders imposed by law, and, to the extent applicable, comply with
Commission Rule 14e-2 under the Exchange Act with respect to a Competing
Transaction.
Except as expressly permitted by the termination provisions of the
Reorganization Agreement (including a termination based on the exercise of the
fiduciary duties of the United Cities Board of Directors pursuant to the
foregoing provisions with respect to a Competing Transaction), nothing in this
provision will permit United Cities to terminate the Reorganization Agreement
or permit it to enter into any agreement with respect to a Competing
Transaction during the term of the Reorganization Agreement, and United Cities
has agreed not to enter into any agreement with any person that provides for,
or in any way facilitates, a Competing Transaction (other than a
confidentiality agreement in customary form).
If the Reorganization Agreement is terminated (i) by United Cities in the
exercise by its Board of Directors of its fiduciary duties with respect to a
Competing Transaction, (ii) by Atmos if the Board of Directors of United
Cities has taken a position recommending a Competing Transaction, or if the
Board of Directors of United Cities fails to recommend the Merger to the
shareholders of United Cities or (iii) by Atmos because the United Cities
shareholders have approved a Competing Transaction, then United Cities must
pay Atmos the amount of $15,000,000 within two business days after such
termination.
If the Reorganization Agreement is terminated because of the failure of
United Cities to satisfy the closing conditions relating to (i) approval of
the Merger by the shareholders of United Cities, (ii) the accuracy of United
Cities' representations and warranties, (iii) the compliance of United Cities
with its covenants and agreements, (iv) undisclosed facts, errors,
misstatements and omissions materially adverse to the business, operations,
properties, condition (financial or otherwise), assets or liabilities of
United Cities or any of its subsidiaries which would result in an adverse
change Material to United Cities, (v) the holders of more than 10% of the
United Cities Stock not having exercised dissenters' rights of appraisal or
(vi) the failure of United Cities to obtain the opinion of PaineWebber that
the Merger is fair to the shareholders of United Cities from a financial point
of view, then United Cities must reimburse Atmos for its reasonable expenses
incurred in connection with the Reorganization Agreement and the transactions
contemplated thereby.
If the Reorganization Agreement is terminated because of the failure of
Atmos to satisfy the closing conditions relating to (i) approval of the Merger
by the shareholders of Atmos, (ii) the accuracy of Atmos' representations and
warranties, (iii) the compliance of Atmos with its covenants and agreements,
(iv) undisclosed facts, errors, misstatements and omissions materially adverse
to the business, operations, properties, condition (financial or otherwise),
assets or liabilities of Atmos or any of its subsidiaries which would result
in an adverse change Material to Atmos or (v) the failure of Atmos to obtain
the opinion of Merrill Lynch that the Exchange Ratio is fair to Atmos from a
financial point of view, then Atmos must reimburse United Cities for its
reasonable expenses incurred in connection with the Reorganization Agreement
and the transactions contemplated thereby.
All other costs and expenses incurred in connection with the Merger, the
Reorganization Agreement and the transactions contemplated thereby (including
any fees due financial advisors) are to be paid by the party incurring the
expense, except that the filing fee for the Registration Statement of which
this Joint Proxy
53
Statement/Prospectus forms a part and expenses incurred in printing and
mailing this Joint Proxy Statement/Prospectus will be shared equally by Atmos
and United Cities.
FEDERAL INCOME TAX CONSEQUENCES
The following summary, based upon current law, is a general discussion of
certain Federal income tax consequences of the Merger to Atmos, United Cities
and holders of Atmos Stock and United Cities Stock assuming the Merger is
consummated as contemplated herein. This summary is based upon the Code,
applicable Treasury regulations thereunder and administrative rulings and
judicial authority as of the date hereof, all of which are subject to change,
possibly with retroactive effect. Any such change could affect the continuing
validity of this summary. This summary applies to holders of Atmos Stock and
United Cities Stock who hold their shares of stock as capital assets. This
summary does not discuss all aspects of income taxation that may be relevant
to a particular holder of Atmos Stock or United Cities Stock in light of such
holder's specific circumstances or to certain types of holders subject to
special treatment under the Federal income tax laws (for example, foreign
persons, dealers in securities, banks and other financial institutions,
insurance companies, tax-exempt organizations and holders who acquired shares
of stock pursuant to the exercise of options or otherwise as compensation or
through a tax-qualified retirement plan), and it does not discuss any aspect
of state, local, foreign or other tax laws. No ruling has been (or will be)
sought from the Internal Revenue Service as to the anticipated tax
consequences of the Merger. Locke Purnell Rain Harrell (A Professional
Corporation), counsel to Atmos, has advised Atmos and Chapman and Cutler,
counsel to United Cities, has advised United Cities that, in their opinions,
the following discussion, insofar as it relates to matters of Federal income
tax law, is a fair and accurate summary of such matters.
It is a condition to the consummation of the Merger that Atmos receive the
opinion of its counsel, Locke Purnell Rain Harrell (A Professional
Corporation), and United Cities receive the opinion of its counsel, Chapman
and Cutler, each to the effect that for federal income tax purposes the Merger
of United Cities with and into Atmos, in accordance with the terms of the
Reorganization Agreement, will qualify as a "reorganization" within the
meaning of Section 368(a)(1)(A) of the Code; no gain or loss will be
recognized by holders of Atmos Stock as a result of the Merger; no gain or
loss will be recognized by holders of United Cities Stock upon the receipt by
them of shares of Atmos Stock in exchange for their shares of United Cities
Stock pursuant to the Merger (except with respect to cash received in lieu of
a fractional interest in Atmos Stock); the aggregate tax basis of the shares
of Atmos Stock received by the shareholders of United Cities (including any
fractional share interests treated as received) will be the same as the
aggregate tax basis of the shares of United Cities Stock surrendered in
exchange therefor; and the holding period of the shares of Atmos Stock
received by the United Cities shareholders (including any fractional share
interests treated as received) in exchange for shares of United Cities Stock
will include the period during which the shares of United Cities Stock
surrendered in exchange therefor were held, provided the shares of United
Cities Stock were held as a capital asset at the Effective Time. Such opinions
are conditioned upon certain assumptions and representations of the
managements of Atmos and United Cities as to certain facts and circumstances
regarding the Merger.
With respect to a United Cities shareholder who dissents from the Merger and
receives cash for the value of such dissenting shareholder's United Cities
Stock, the opinions of Locke Purnell Rain Harrell (A Professional Corporation)
and Chapman and Cutler will each state that such cash will be treated as
having been received as a distribution from United Cities in redemption of
such United Cities Stock, subject to the provisions and limitations of Section
302 of the Code. If the redemption does not have the effect of the
distribution of a dividend or it results in a complete termination of the
shareholder's interest in United Cities under Section 302 of the Code (after
applying the constructive ownership rules of Section 318 of the Code), such
redemption would be treated as a distribution in full payment in exchange for
such United Cities Stock, and thus the dissenting shareholder would recognize
a gain or loss measured by the difference between the cash received and the
basis for such United Cities Stock. To the extent a cash payment to a
dissenting shareholder represents interest due from the Effective Time, such
payment will constitute income to the dissenting shareholder within the
meaning of Section 61 of the Code.
54
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS ONLY A GENERAL
DISCUSSION. SHAREHOLDERS OF ATMOS AND UNITED CITIES ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE FEDERAL
INCOME TAX CONSEQUENCES TO THEM OF THE MERGER, AS WELL AS ADVICE AS TO THE
APPLICATION AND EFFECT OF STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS
AND POSSIBLE AMENDMENTS TO SUCH LAWS (WITH POSSIBLE RETROACTIVE EFFECT).
ACCOUNTING TREATMENT
It is a condition to the consummation of the Merger that Atmos receive the
written opinion of its independent accountants stating that they concur in the
accounting treatment of the Merger as a pooling of interests. The pooling of
interests method of accounting assumes that the combining companies have been
merged from inception and the historical financial statements for periods
prior to consummation of the Merger are restated as though the companies had
been combined from inception. Under this method of accounting, the assets and
liabilities of Atmos and United Cities will be carried forward at their book
values and the reported income of Atmos and United Cities for prior periods
will be combined and restated as income for the combined company. While Atmos
and United Cities intend to conduct their respective businesses and pursue the
consummation of the Merger in a manner that will satisfy the conditions for
pooling of interests accounting, there can be no assurance that circumstances
or events beyond the control of Atmos or United Cities will not prevent the
application of such accounting treatment.
ELECTION OF DIRECTORS
The Plan of Merger provides that at the Effective Time, the Atmos Board of
Directors will consist of 15 persons, 11 of whom will be the then existing
directors of Atmos at the Effective Time and four of whom will be the United
Cities Designees.
The Atmos Board of Directors is divided into three classes, each of which
consists, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board. Each class of directors serves a
three-year term. For additional information regarding classification of the
Atmos Board of Directors see "Comparison of Shareholder Rights--Election and
Removal of Directors" and "Management of Atmos Following the Merger."
Each of the United Cities Designees has consented to serve as a director of
Atmos. In order to be elected as a director, Atmos' Bylaws require a nominee
to receive the vote of a majority of all outstanding shares of Atmos Stock
entitled to vote and represented in person or by proxy at a meeting of the
Atmos shareholders at which a quorum is present. Because the vote required to
approve the proposal to ratify the Reorganization Agreement and approve the
Plan of Merger and the Merger is higher than a majority, approval of such
proposal will satisfy the required vote for the election of directors.
Certain information regarding each of the United Cities Designees is set
forth below:
ATMOS CLASS DESIGNATION
AND YEAR OF
NAME AGE EXPIRATION OF TERM
---- --- -----------------------
Gene C. Koonce................................ 64 Class I
1999
Vincent J. Lewis.............................. 51 Class I
1999
55
ATMOS CLASS DESIGNATION
AND YEAR OF
NAME AGE EXPIRATION OF TERM
---- --- -----------------------
Richard W. Cardin............................. 60 Class II
1997(1)
Thomas J. Garland............................. 61 Class III
1998
- --------
(1) In the event the Merger is not consummated prior to the annual meeting of
shareholders of Atmos scheduled to be held on February 12, 1997, the term
of Mr. Cardin will expire in 2000.
Mr. Koonce joined United Cities in 1978 as President and Chief Executive
Officer. Mr Koonce became United Cities' Chairman of the Board, President and
Chief Executive Officer in May 1996. He is a professional engineer. Mr. Koonce
is a director of First American Corporation in Nashville, Tennessee. He is
also a director of the American Gas Association. He has served as chairman of
the Southern Gas Association and president of the Tennessee Gas Association.
Mr. Cardin has been a consultant and private investor since his retirement
in 1995 as a partner of Arthur Andersen, an international firm of independent
public accountants and consultants. During the years from 1980-1994, he was
office managing partner of the Nashville, Tennessee office of Arthur Andersen.
Mr. Lewis is a senior vice president at Legg Mason Wood Walker, Inc. in
Rutherford, New Jersey. He served as a director of Tennessee-Virginia Energy
Corporation until its acquisition by United Cities in 1986.
Mr. Garland is an executive in residence and distinguished service professor
of the civic arts at Tusculum College in Greeneville, Tennessee and also a
consultant. He serves as a member of the board of directors of Peoples
Community Bank in Johnson City, Tennessee. He previously served as chancellor
of the Tennessee Board of Regents.
Should any United Cities Designee named herein for the office of director
become unable or unwilling to accept nomination or election, it is intended
that United Cities will be entitled to designate another person for election
in his stead. Atmos and United Cities have no reason to believe that any
United Cities Designee named above will be unable or unwilling to serve if
elected.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
The Reorganization Agreement and the Plan of Merger contemplate that certain
employees and members of the management and the Board of Directors of Atmos
and United Cities will be entitled to receive the benefits described below.
United Cities Personnel.
Retention of United Cities Employees; Employee Plans. At the Effective Time,
all employees of United Cities and its subsidiaries ("United Cities
Employees") will become employees of Atmos or its post-merger subsidiaries.
The employees' titles and job descriptions will be determined by Atmos in its
sole discretion. In the Reorganization Agreement, Atmos agreed to retain all
of such employees for a period of one year following the Effective Time at
their approved rate of pay as in effect immediately prior to the Effective
Time. During such one-year period, Atmos has the right to terminate any former
United Cities Employee for cause, provided, that no employee who is a former
officer of United Cities or any of its subsidiaries may be terminated for
cause during such period without having been given a reasonable opportunity to
cure and correct, to the satisfaction of Atmos, the deficiencies or other
circumstances giving rise to such cause. Following such one-year period,
United Cities Employees will be employed by Atmos or its post-merger
subsidiaries on an "at will" basis.
During the one-year period following the Effective Time and except as
described below with regard to the United Cities SERP, each former United
Cities Employee who continues his or her employment with Atmos or
56
its post-merger subsidiaries and who was a participant in any plan or employee
benefit arrangement maintained by United Cities prior to the Effective Time
will continue to participate in such plan and employee benefit arrangement and
Atmos is required to maintain such plan or employee benefit arrangement during
such one-year period. Atmos has the right to merge or terminate any such plan
or employee benefit arrangement if, in its sole judgment, Atmos determines
that the same or better benefits are available to the employees covered
thereunder under a similar plan or employee benefit arrangement which was
maintained by Atmos before the Effective Time (and continues to be so
maintained) and under which immediate coverage for such employees can be
provided. Atmos will credit all former United Cities Employees who continue
their employment with Atmos or its post-merger subsidiaries for service
performed as employees of United Cities prior to the Effective Time for
eligibility, participation and vesting (but not for benefit accrual) purposes
in any employee plan or program maintained by Atmos at or after the Effective
Time for which such employees are eligible. Former United Cities Employees who
continue to be covered under any plan or employee benefit arrangement
previously maintained by United Cities will not during the period of such
coverage, be eligible to participate in any plan or employee benefit
arrangement which provides the same or similar benefits and which was
maintained by Atmos before the Effective Time. Certain key management
employees as selected by Atmos will be eligible to participate in Atmos'
Annual Performance Bonus Plan for Key Management Employees and Atmos' Mini-Med
Plan. Atmos will become the successor plan sponsor under the United Cities
Qualified Retirement Plan and expects to make ongoing contributions to such
plan in the amounts necessary to satisfy the minimum funding requirements for
such plan.
Under the Reorganization Agreement, except as described above, Atmos assumed
no responsibility and made no commitment for the maintenance and continuation,
after the Closing, of any plan or employee benefit arrangement previously
adopted or maintained by United Cities. However, a decision by Atmos to
discontinue any plan or employee benefit arrangement must not be based solely
on the status of the participants as former United Cities Employees.
The Reorganization Agreement provides that nothing in the Reorganization
Agreement is intended or should be interpreted to limit any rights of any
United Cities Employees, or any obligation of United Cities or Atmos, pursuant
to any collective bargaining agreement or the National Labor Relations Act and
that the United Cities Employees subject to any collective bargaining
agreement will be entitled to the rights provided them in the Reorganization
Agreement to the extent permitted by the National Labor Relations Act.
Executive Employment Agreements. Pursuant to the Reorganization Agreement,
Atmos has agreed to enter into Employment Agreements with Messrs. Gene C.
Koonce, James B. Ford and Thomas R. Blose, Jr., the Chairman of the Board,
President and Chief Executive Officer, the Senior Vice President and Treasurer
and the Senior Vice President--Operations and Engineering, respectively, of
United Cities, upon consummation of the Merger. Under the Employment
Agreements with Messrs. Ford and Blose, Atmos agrees to employ them as the
Senior Vice President--Finance of Atmos and as the President of the United
Cities operating division of Atmos and Vice President of Atmos, respectively,
for a period of three years commencing at the Effective Time. Pursuant to Mr.
Koonce's Employment Agreement, Mr. Koonce will become an officer of Atmos and
serve as Vice Chairman of the Atmos Board of Directors for a period of six
months after the Effective Time. The provision relating to Mr. Koonce serving
as a director of Atmos assumes that he is elected to the Atmos Board of
Directors by the Atmos shareholders by virtue of their approval of the Merger.
See "The Reorganization Agreement and The Merger--Election of Directors."
Each such Employment Agreement provides that the employee will receive an
annual base salary, coverage under Atmos' Mini-Med Plan, participation in
Atmos' Annual Performance Bonus Plan for Corporate Officers, participation in
Atmos' Restricted Stock Grant Plan, participation in Atmos' SEBP (as defined
hereinafter), participation in Atmos' pension, employee stock ownership,
welfare benefit and other similar plans and benefits on the same basis as
other executives of Atmos. The initial annual base salaries for Messrs.
Koonce, Ford and Blose are $370,875, $193,775 and $191,475, respectively. With
respect to the employee's participation in the SEBP, Mr. Koonce will and
Messrs. Ford and Blose will not be entitled to credit for services performed
as an
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officer of United Cities prior to the Effective Time for eligibility,
participation and vesting purposes in the SEBP. By executing his Employment
Agreement, Mr. Koonce will waive and relinquish all of his rights to receive
benefits under the SERP or any substantially similar plan. Messrs. Koonce,
Ford and Blose are entitled to receive other fringe benefits on the same basis
as other executive officers of Atmos. In addition, each Employment Agreement
provides for a retention payment of $60,000 if on the expiration of six months
following the Closing Date (i) the employee is an employee of Atmos or (ii)
the employee is not an employee of Atmos as a result of his employment having
been terminated by Atmos for reasons other than for "cause" (as defined in the
Employment Agreements), his resignation for "good reason" (as defined in the
Employment Agreements) or his having taken normal retirement at age 65.
If Atmos terminates the employment of the employee for reasons other than
for "cause" (as defined in the Employment Agreements) or on account of his
disability, or if the employee terminates his employment for "good reason" (as
defined in the Employment Agreements), then such termination constitutes a
breach of contract by Atmos and during the period commencing on the date of
such termination and ending on the third anniversary of the Employment
Agreement (in the cases of Messrs. Ford and Blose) or the six month
anniversary of the Employment Agreement (in the case of Mr. Koonce) Atmos will
(i) continue to pay the employee the salary provided in his Employment
Agreement, payable monthly, at the same level as was payable to the employee
immediately prior to such termination, (ii) continue to provide the employee
with all of the benefits described in his Employment Agreement at the same
levels as were provided to the employee prior to such termination, (iii)
continue to make contributions on behalf of the employee to all pension,
retirement, supplemental executive retirement and other plans and programs
maintained by Atmos and in which the employee participated prior to such
termination equal to the amount of the largest contribution with respect to
each such plan or program which Atmos contributed on behalf of such employee
during any of the three calendar years preceding the calendar year wherein
such termination occurs and (iv) be liable to such employee for any actual
damages sustained by such employee as a result of any such breach of contract.
If the employee dies during the term of the Employment Agreement, Atmos will
pay to his legal representative all compensation accrued through the date of
termination. If the employee suffers a "disability" (as defined in the
Employment Agreement), his Employment Agreement will terminate, Atmos will pay
to him all compensation accrued through the date of such termination and he
will thereafter be compensated under Atmos' applicable disability plan. If the
employee is terminated by Atmos for "cause" (as defined in the Employment
Agreements) or if the employee voluntarily terminates his employment without
"good reason" (as defined in the Employment Agreements), Atmos will pay to the
employee all compensation accrued through the date of termination.
In addition, Atmos has entered into severance agreements with Mr. Glenn B.
Rogers, Senior Vice President--Gas Supply and Marketing of United Cities, and
Ms. Shirley M. Hawkins, Senior Vice President and Secretary of United Cities,
which provide that in the event of their termination of employment for any
reason after the one-year period following the Effective Time, Atmos will
provide them with a severance payment equal to 200% of their then annual
compensation, provided, however, that such amount shall be no less than the
amount of their compensation during such one-year period.
There is some possibility that any severance payments made in accordance
with these employment and severance agreements to Messrs. Koonce, Ford, Blose
and Rogers and Ms. Hawkins, together with any payments that such individuals
will receive in exchange for providing a waiver and release of their rights
under the SERP, could be treated as "excess parachute payments" as defined
under Section 280G of the Code. If these payments are determined to be "excess
parachute payments" under Section 280G of the Code, neither Atmos nor United
Cities will be allowed a deduction for the portion of the combined payments
that is in excess of the recipient's average annual compensation for the
preceding five years.
Supplemental Executive Retirement Plan. United Cities maintains the SERP for
the benefit of certain of its management and key employees. It is a condition
to the consummation of the Merger that, prior to the
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Closing, United Cities shall have (i) terminated the SERP and all accompanying
joinder agreements and (ii) obtained waivers and releases from all "active
participants" (as defined in the SERP, excluding Mr. Koonce) with respect to
any and all rights and benefits to which they were entitled thereunder. In
consideration for such waivers and releases United Cities will pay to each
such participant (other than Mr. Koonce) an amount equal to one dollar less
than 300% of the average of such participant's annual compensation paid by
United Cities and included in his or her gross income for Federal income tax
purposes for the five year period ending on the December 31 immediately
preceding the Closing Date. The aggregate of all such payments is estimated
not to exceed $5,100,000.
Under the Reorganization Agreement, Atmos agreed to provide coverage for
each individual (other than Mr. Koonce) who was an active participant in the
SERP immediately prior to the date the Reorganization Agreement was signed,
under a "death benefit only" plan providing the same "survivor benefit" as
provided under, and defined in, the SERP; provided, that United Cities shall
have, prior to the Effective Time, transferred ownership of any and all "death
benefit only" insurance policies described in the SERP to Atmos.
Subsequent to the execution of the Reorganization Agreement, United Cities
adopted amendments to the SERP that, among other things, provide that if a
participant becomes subject to the federal excise tax on "excess parachute
payments" as a result of receiving any payments pursuant to the change of
control provisions of the SERP, United Cities is obligated to make an
additional cash payment to make him or her whole for such excise tax, on an
after-tax basis. The maximum potential cost to United Cities of this change is
approximately $8.9 million. Additionally, a provision was added which would
render the change of control provisions thereof inapplicable in the event that
United Cities undergoes a change of control involving an entity other than
Atmos if such other entity agrees to provide SERP participants with
compensation and employee benefits at least equivalent to those agreed to by
Atmos. The change of control provisions are inapplicable to SERP participants
under the Atmos transaction because the waivers and releases referred to above
have been obtained.
Indemnification and Insurance for United Cities' Directors and
Officers. Under the Reorganization Agreement, Atmos agreed that, with respect
to matters occurring prior to the Effective Time, all rights to
indemnification and advancement of expenses existing in favor of the present
or former directors, officers, employees, fiduciaries and agents of United
Cities as provided in United Cities' Articles of Incorporation or Bylaws as in
effect as of the date of the Reorganization Agreement will survive the Merger
and will continue in full force and effect for a period of not less than the
statutes of limitations applicable to such matters. The Reorganization
Agreement also contemplates that, with respect to matters occurring prior to
the Effective Time, the United Cities directors and officers would continue to
have coverage under a policy of directors' and officers' liability insurance
for a period of five years after the Effective Time. Atmos' existing insurance
policy will cover the United Cities directors and officers who become
directors and officers of Atmos as to matters occurring after the Effective
Time, and a supplemental policy will be obtained covering all of the United
Cities directors and officers for matters involving United Cities occurring
prior to the Effective Time.
Atmos Personnel.
Severance Agreements. Atmos has severance agreements with seven of its
executive officers that require Atmos to take certain actions for the benefit
of such officers in the event there occurs a "potential change in control" (as
defined therein) of Atmos and to make severance payments to such officers if
their employment with Atmos is terminated in certain circumstances within
three years following a "change in control" of Atmos (as defined therein). The
execution of the Reorganization Agreement by Atmos and United Cities
constituted a "potential change in control" of Atmos under six of the
severance agreements, and approval of the Merger by the Atmos shareholders
will constitute a "change in control" of Atmos under those six severance
agreements. A "change in control" is deemed to occur under these provisions
and under the Atmos SEBP, SBP and Restricted Stock Grant Plan because the
present Atmos shareholders will not own at least 60% of the outstanding Atmos
Stock following the Merger. Severance payments under the severance agreements
consist of the officer's full base salary and benefits through his or her date
of termination of employment, a lump sum payment of 2.99
59
times his or her "base amount" (as defined) and any legal fees or expenses
incurred to enforce the terms of the severance agreement.
The occurrence of a "potential change in control" of Atmos under six of the
severance agreements required Atmos to establish Letters of Credit for the
benefit of each of the executive officers in the amount that would be payable
under the severance agreement if the executive officer were immediately
entitled to payment of full severance benefits. On July 24, 1996, Atmos
established the Letters of Credit in the aggregate amount of $5,153,613 (which
equals the amount that would be so payable). The Letters of Credit must be
maintained by Atmos for two years from the date of issue or three years
following a "change in control" of Atmos, whichever is later. Atmos is
required to increase the amounts available to be drawn upon under the Letters
of Credit every six months to match any increases in the amount of severance
benefits then payable. Following a "potential change in control," the officer
is obligated to continue his or her employment with Atmos until the earliest
of six months after the occurrence of such potential change in control, his or
her disability or retirement or the occurrence of a "change in control."
After a "change in control," each of the severance agreements provides that
the officer will be entitled to receive full severance benefits if his or her
employment with Atmos is terminated within three years after the "change in
control" (i) by Atmos other than for "cause" (as defined) or (ii) by the
officer for "good reason" (as defined). If the officer's employment is
terminated (i) by Atmos for "cause," (ii) by the officer other than for "good
reason," or (iii) as a result of the officer's death, disability or
retirement, then the officer (or his or her estate) is entitled to receive his
or her full base salary and benefits through the date of such termination, but
not any severance payment. The severance agreement of Mr. Stephens further
provides that he is entitled to receive full severance benefits if he resigns
for any reason within 180 days following a "change in control."
Restricted Stock Grant Plan. All of Atmos' officers and division presidents
have been awarded shares of restricted stock pursuant to Atmos' Restricted
Stock Grant Plan, and one retired officer was awarded shares of restricted
stock while he was an officer, all of which shares are subject to transfer
restrictions. The approval of the Merger by the Atmos shareholders will
constitute a "change in control" under the Restricted Stock Grant Plan, and
all of the transfer restrictions on all of such shares will lapse at such
time. As of October 9, 1996, an aggregate of 124,796 shares of restricted
stock issued under the Restricted Stock Grant Plan are beneficially owned by
Atmos' officers and division presidents, and the one retired officer, as a
group.
Supplemental Executive Benefits Plan and Supplemental Benefits Plan for Key
Management Employees. All of Atmos' officers participate in Atmos' SEBP, and
the presidents of each of Atmos' four operating divisions participate in
Atmos' Supplemental Benefits Plan for Key Management Employees (the "SBP"),
each of which provides for the payment of death, supplemental disability
and/or supplemental retirement benefits. Participants must meet certain length
of service and other requirements in order to become vested in their
supplemental retirement benefits. All participants already satisfy the length
of service requirements and all but three of such participants already satisfy
the other vesting requirements. The approval of the Merger by the Atmos
shareholders will constitute a "change in control" under the SEBP and the SBP.
Under the SEBP and the SBP, if a participant's employment is terminated after
a "change in control" for any reason other than his death or disability or his
termination for "cause" or if his participation in the SEBP or the SBP is
terminated prior to his termination of employment with Atmos, then his right
to receive a supplemental pension vests immediately, regardless of whether he
has satisfied the length of service or other criteria for vesting.
STANDSTILL AGREEMENT
On July 13, 1996, Atmos and United Cities entered into a Standstill
Agreement (the "Standstill Agreement") providing that for a period of two
years from the date thereof neither party would, directly or indirectly, (i)
acquire, or offer or agree to acquire, by purchase or otherwise, any
securities or property of the other party (or any rights or options therefor),
(ii) solicit proxies or consents or become a participant in a solicitation of
proxies or consents with respect to securities of the other party, (iii)
either alone or in concert with others, seek to control or influence the
management, board of directors or the policies of the other party,(iv) induce,
attempt to induce or in any manner assist any other person in initiating a
shareholder proposal or a
60
tender or exchange offer for securities of the other party or any change of
control of the other party, or for the purpose of convening a shareholders'
meeting of the other party, (v) make any public announcement or make any
written or oral proposal or invitation to discuss any possibility, intention,
plan or arrangement, relating to a tender or exchange offer for securities of
the other person or a merger, consolidation or other business combination (or
other similar transaction which should result in a change of control), sale of
all or a substantial portion of the assets of the other party,
recapitalization, restructuring, liquidation, dissolution or other
extraordinary corporate transaction, (vi) deposit any securities of the other
party in a voting trust or subject any securities of the other party to any
voting arrangement or agreement, (vii) form any group (or act in concert with
any other person) for the purpose of acquiring, holding, voting and disposing
of securities of the other party or take any actions, or announce the
intention to do any of the actions, restricted or prohibited by the Standstill
Agreement or (viii) request the other party to amend or waive any of the
foregoing except pursuant to a definitive agreement relating to the Merger.
Notwithstanding the foregoing, the employee benefit plans of either party may
acquire up to 1% of the securities of the other party in the aggregate.
WOODWARD MARKETING, L.L.C.
UCG Energy Corporation ("UCG Energy"), a subsidiary of United Cities, owns a
45% interest in Woodward Marketing, L.L.C. (the "LLC"), a limited liability
company that provides gas marketing services to industrial customers,
municipalities and local distribution companies, including United Cities. The
remaining 55% interest is owned by Woodward Marketing, Inc. ("WMI"), which is
otherwise unaffiliated with United Cities. Under a Transfer Restriction
Agreement between UCG Energy and WMI, consummation of the Merger will give WMI
the right to purchase the 45% interest in the LLC held by UCG Energy for its
appraised fair market value. United Cities intends to seek a waiver of WMI's
purchase right, but there can be no assurance that WMI will grant such a
waiver, or that, if granted, such a waiver will be on terms acceptable to
Atmos.
The Transfer Restriction Agreement also includes a non-competition covenant
prohibiting United Cities and its affiliates from competing with the LLC in
certain markets, subject to certain exceptions, for a period of ten years or
for a shorter period in certain circumstances. The non-competition covenant
may affect the marketing activities conducted by certain of Atmos'
subsidiaries. If such activities are so affected, Atmos intends to seek a
waiver of the non-competition covenant. It is a condition to the consummation
of the Merger that such waiver be obtained on terms satisfactory to Atmos.
REGULATORY MATTERS
As indicated below, consummation of the Merger is subject to numerous
regulatory approvals. Due to the time that may be required to obtain such
approvals, the Merger may not be consummated for a period of time after the
shareholders meetings of Atmos and United Cities. Atmos and United Cities do
not currently expect to receive all such regulatory approvals prior to March
1, 1997 and accordingly, do not currently expect the Merger to occur prior to
such time. Set forth below is a summary of the material regulatory
requirements affecting the Merger.
Federal and State Approval and Related Matters. Atmos currently is subject
to the jurisdiction of the Colorado Public Utilities Commission, Kansas
Corporation Commission, Kentucky Public Service Commission, Louisiana Public
Service Commission, Missouri Public Service Commission and Texas Railroad
Commission, with respect to its utility operations in those states. In Texas,
Atmos operates pursuant to franchise agreements with each municipality it
serves. The cities have original jurisdiction over rates for customers within
the city limits. The Texas Railroad Commission has appellate jurisdiction over
these rates and original jurisdiction over areas not within incorporated
cities.
United Cities currently is subject to the jurisdiction of the Georgia Public
Service Commission, Illinois Commerce Commission, Iowa Utilities Board, Kansas
Corporation Commission, Missouri Public Service Commission, South Carolina
Public Service Commission, Tennessee Regulatory Authority and Virginia State
Corporation Commission, with respect to its utility operations in those
states.
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Atmos and United Cities have filed joint applications for the approval, or
waiver of the approval requirements, of the Merger and related transactions
with the Georgia Public Service Commission, Illinois Commerce Commission, Iowa
Utilities Board, Kansas Corporation Commission, Missouri Public Service
Commission, Tennessee Regulatory Authority and Virginia State Corporation
Commission. Atmos has filed an application with the South Carolina Public
Service Commission for the issuance of a certificate of public convenience and
necessity. The issuance of the Atmos Stock to United Cities' shareholders in
the Merger, and issuances of Atmos Stock (after the Merger) upon the exercise
of options granted under the United Cities Stock Plan, will require the
approval of the utility regulatory authorities in the States of Colorado,
Georgia, Illinois, Kentucky, Missouri and Tennessee. In addition, Atmos must
receive the approvals of the utility regulatory authorities in the States of
Georgia, Illinois and Tennessee and the Commonwealth of Virginia to issue
shares of Atmos Stock after the Merger in connection with Atmos' existing
Direct Stock Purchase Plan, ESOP, Outside Directors Stock-for-Fee Plan and
Restricted Stock Grant Plan. The approval of the Georgia Public Service
Commission will also be necessary for Atmos to assume any debt obligations of
United Cities. In addition, United Cities must obtain the approval of the
Federal Energy Regulatory Commission for the transfer of certain of United
Cities' limited certificates of authority.
Southern Union has filed applications to intervene in the regulatory
proceedings relating to the applications described above in the states of
Georgia, Illinois, Iowa, Kansas, Kentucky and Missouri. The Missouri Public
Service Commission has granted Southern Union the right to intervene in the
proceedings in that state.
Assuming the requisite regulatory approvals are obtained, Atmos' utility
operations and, in some instances, financing activities, will be subject to
regulation by the Colorado Public Utilities Commission, Georgia Public Service
Commission, Illinois Commerce Commission, Iowa Utilities Board, Kansas
Corporation Commission, Kentucky Public Service Commission, Louisiana Public
Service Commission, Missouri Public Service Commission, South Carolina Public
Service Commission, Tennessee Regulatory Authority, Texas Railroad Commission
and Virginia State Corporation Commission.
Antitrust Considerations. Certain transactions such as the Merger are
reviewed by the Antitrust Division of the Department of Justice (the
"Antitrust Division") or the Federal Trade Commission (the "FTC") to determine
whether such transactions comply with applicable antitrust laws. Under the
provisions of the HSR Act, the Merger may not be consummated until certain
information has been furnished to the Antitrust Division and the FTC and a 30-
day waiting period, subject to possible extension by the Antitrust Division or
the FTC, has been satisfied. The expiration or early termination of the HSR
Act waiting period would not preclude the Antitrust Division or the FTC from
challenging the Merger on antitrust grounds. Neither Atmos nor United Cities
believes that the Merger will violate federal antitrust laws. If the Merger is
not consummated within 12 months after the expiration or early termination of
the initial HSR Act waiting period, Atmos and United Cities would be required
to submit new information to the Antitrust Division and the FTC and a new HSR
Act waiting period would have to expire or be earlier terminated before the
Merger could be consummated.
Other. United Cities possesses municipal franchises and environmental
permits and licenses that may require the consent of the licensor to the
Merger or may need to be renewed, replaced or transferred as a result of the
Merger. As of the date hereof, nothing has come to the attention of Atmos and
United Cities which either believes would cause any difficulties in obtaining
such consents, renewals, replacements or transfers.
General. Under the Reorganization Agreement, Atmos and United Cities have
agreed to use all reasonable efforts to obtain all necessary consents,
waivers, approvals, authorizations and orders of all local, state and federal
governmental authorities required in connection with the authorization,
execution and delivery of the Reorganization Agreement and the consummation of
the transactions contemplated by the Reorganization Agreement. Various parties
may seek intervention in these proceedings to oppose the Merger or to have
conditions imposed upon the receipt of necessary approvals. While Atmos and
United Cities believe that they will receive the requisite regulatory
approvals for the Merger, there can be no assurance as to the timing of such
approvals or the ability of such parties to obtain such approvals on
satisfactory terms or otherwise. It is a
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condition to the consummation of the Merger that final orders approving the
Merger be obtained from the various federal, state and local commissions
described above on terms and conditions which would not, in Atmos' judgment,
have a material adverse change in the business, operations, properties,
condition (financial or otherwise), assets or liabilities of Atmos and its
subsidiaries, taken as a whole, or United Cities and its subsidiaries, taken
as a whole. There can be no assurance that any such approvals will not contain
terms or conditions that would cause such approvals to fail to satisfy such
condition to the consummation of the Merger.
ENVIRONMENTAL MATTERS
As a result of the Merger, the current shareholders of Atmos will become
subject to the risks associated with United Cities' environmental matters and
the shareholders of United Cities will become subject to the risks associated
with Atmos' environmental matters.
United Cities. United Cities is the owner or previous owner of manufactured
gas plant sites which were used to supply gas prior to the availability of
natural gas. Manufactured gas was an inexpensive source of fuel for lighting
and heating nationwide. As a result of the gas manufacturing process, certain
by-products and residual materials, including coal-tar, were produced and may
have been accumulated at the plant sites. This was an acceptable and
satisfactory process at the time such operations were being conducted. Under
current environmental protection laws and regulations, United Cities may be
responsible for response action with respect to such materials, if response
action is necessary.
United Cities owns former manufactured gas plant sites in Johnson City and
Bristol, Tennessee and Hannibal, Missouri. United Cities is unaware of any
information which suggests that these sites give rise to a present health or
environmental risk as a result of the manufactured gas process or that any
response action will be necessary. United Cities and the Tennessee Department
of Environment and Conservation may enter into a consent order for the purpose
of investigating the Johnson City site. United Cities expects to negotiate and
start the implementation of a consent order over the next year. As of June 30,
1996, United Cities had incurred and deferred for recovery $27,000 and accrued
and deferred for recovery an additional $750,000 associated with the
preliminary survey and invasive study of these sites. The Tennessee Public
Service Commission granted United Cities permission to defer, until its next
rate case, all costs incurred in Tennessee in connection with state and
federally mandated environmental control requirements. In addition, based on a
decision by the Missouri Public Service Commission concerning the recovery of
environmental response action costs incurred by another company, United Cities
expects recovery through rate adjustments of the costs involved in the
investigation and response action, if any, associated with the manufactured
gas plant site in Missouri. United Cities also owns property in Keokuk, Iowa
on which a manufactured gas plant was located, and environmental issues at the
site have been addressed through a settlement with another utility.
In October 1995, United Cities received two Notices of Violation ("NOVs")
from the Tennessee Department of Environment and Conservation ("TDEC")
concerning historic releases from an underground storage tank ("UST") site in
Kingsport, Tennessee. This UST was formerly owned by Holston Oil Co., Inc.
("Holston"), which at one time was a wholly-owned subsidiary of Tennessee-
Virginia Energy Corporation ("TVEC"). Prior to TVEC's merger with United
Cities in 1986, TVEC sold the common stock of Holston to an unrelated party.
United Cities has responded to the NOVs advising the TDEC that United Cities
is not a responsible party for any environmental contamination at the site.
United Cities does not anticipate incurring any response action costs at this
site.
United Cities has reviewed and commented on a proposed Consent Order from
the Kansas Department of Health and Environment ("KDHE") regarding mercury
contamination at gas meter sites. The KDHE has identified the need to
investigate gas industry activities which utilize mercury equipment in Kansas.
United Cities is cooperating with the KDHE in preparing a Consent Order and a
Work Plan for responding to mercury contamination at any site which is
identified as exceeding the KDHE's established acceptable concentration
levels. As of June 30, 1996, United Cities had identified approximately 720
meter sites where mercury may have been used and had incurred and deferred for
recovery $29,000 and, based on available current information,
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accrued and deferred for recovery an additional $280,000 for the investigation
of these sites. United Cities has estimated that it may incur an additional
amount of up to $4,100,000 over the next seven years in responding to a future
administrative order for those sites, if any, that exceed the KDHE's
established acceptable concentration levels. United Cities has received an
order from the Kansas Corporation Commission ("KCC") allowing United Cities to
defer and seek recovery in future rate proceedings the reasonable and prudent
costs and expenses associated with the Consent Order and Work Plan. In the
order, the KCC approved a Stipulation and Agreement which provides a cap of
$1,500,000 on amounts deferred with the ability to exceed this cap if
reasonable costs of response action are incurred. Based on a decision by the
KCC concerning the recovery of environmental response action costs incurred by
another company, United Cities expects recovery of the costs involved in the
investigation and response action associated with the mercury meter sites in
Kansas.
United Cities addresses other environmental matters from time to time in the
regular and ordinary course of its business. Management of United Cities
expects that future expenditures related to response action at any site will
be recovered through rates or insurance, or shared among other potentially
responsible parties. Therefore, the costs of responding to these sites are not
expected to materially affect the results of operations, financial condition
or cash flows of United Cities.
Atmos. From time to time, Atmos receives inquiries regarding various
environmental matters. Atmos believes that its properties and operations
substantially comply with, and are operated in substantial conformity with,
all applicable environmental statutes and regulations. There are no
administrative or judicial proceedings arising under environmental quality
statutes pending or known to be contemplated by governmental agencies which,
if adversely determined, would have a material adverse effect on Atmos.
RESTRICTIONS ON RESALES OF ATMOS STOCK
All shares of Atmos Stock received by United Cities shareholders will be
freely tradeable, except that shares of Atmos Stock received by persons who
are deemed to be "affiliates" (as such term is defined for purposes of Rule
145 under the Securities Act) of United Cities prior to the Merger may be
resold by them only pursuant to an effective registration statement covering
such shares or in transactions permitted by the resale provisions of Rule 145
promulgated under the Securities Act (or Rule 144 under the Securities Act in
the case of such persons who become affiliates of Atmos) or as otherwise
permitted under the Securities Act. Persons who may be deemed to be affiliates
of United Cities or Atmos generally include individuals or entities that
control, are controlled by, or are under common control with, such party and
would ordinarily include directors, executive officers and principal
shareholders of such party. Under guidelines published by the Commission, the
sale or other disposition of United Cities Stock or Atmos Stock by an
affiliate of either United Cities or Atmos, as the case may be, within 30 days
prior to the Effective Time or the sale or disposition of Atmos Stock
thereafter prior to the publication of financial results covering at least 30
days of the post-Merger combined operations of Atmos and United Cities could
preclude pooling of interests accounting treatment of the Merger.
United Cities has agreed in the Reorganization Agreement to use all
reasonable efforts to obtain from shareholders of United Cities who are
affiliates of United Cities written agreements under which they may not
dispose of their shares of Atmos Stock received in the Merger in violation of
the Securities Act or prior to the publication of financial results covering
at least 30 days of the post-Merger combined operations of Atmos and United
Cities.
DISSENTERS' RIGHTS
Atmos Shareholders. The TBCA does not provide dissenters' rights of
appraisal if the dissenting shareholder holds shares in a corporation which
are listed on a national securities exchange or held of record by more than
2,000 shareholders. As of the record date for the Atmos Shareholders Meeting,
Atmos Stock was held of record by more than 2,000 persons and was listed on
the NYSE.
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United Cities Shareholders. Presently, holders of shares of United Cities
Stock have no dissenters' rights under Virginia law as a result of the
application of Section 13.1-730 of the VSCA, which denies dissenters' rights
to shareholders in certain transactions, such as the Merger, by corporations
whose shares are held by more than 2,000 record shareholders or whose shares
are listed on a national securities exchange or on The Nasdaq National Market.
As of the record date for the United Cities Shareholders Meeting, United
Cities Stock was held of record by more than 2,000 persons and was quoted on
The Nasdaq National Market.
Sections 11.65 and 11.70 of the IBCA entitle any United Cities shareholder
who objects to the Merger and who follows the prescribed procedures to receive
cash equal to the "fair value" of such shareholder's shares of United Cities
Stock in lieu of receiving the consideration proposed under the Merger. Set
forth below is a summary of the procedures relating to the exercise of such
dissenters' rights. This summary does not purport to be a complete statement
of the dissenters' rights and is qualified in its entirety by reference to
Sections 11.65 and 11.70 of the IBCA, which are reproduced in full as Exhibit
D attached to this Joint Proxy Statement/Prospectus.
ANY SHAREHOLDER OF UNITED CITIES CONTEMPLATING THE POSSIBILITY OF DISSENTING
FROM THE MERGER SHOULD CAREFULLY REVIEW THE TEXT OF EXHIBIT D (PARTICULARLY
THE SPECIFIC PROCEDURAL STEPS REQUIRED TO PERFECT DISSENTERS' RIGHTS) AND
SHOULD CONSULT SUCH SHAREHOLDER'S LEGAL COUNSEL. SUCH RIGHTS WILL BE LOST IF
THE PROCEDURAL REQUIREMENTS OF SECTION 11.70 OF THE IBCA ARE NOT FULLY AND
PRECISELY SATISFIED.
Under the IBCA, each holder of shares of United Cities Stock may assert
appraisal rights only by delivering to United Cities, before the votes at the
United Cities Shareholders Meeting are taken, a written demand for payment for
the holder's shares if the Merger is consummated. If the Merger is consummated
and such shareholder did not vote in favor of the Merger, United Cities will,
within the later of 10 days after the Effective Time or 30 days after the
shareholder delivered the written demand for payment, send to such shareholder
a statement setting forth (i) United Cities' opinion as to the estimated fair
value of such shareholder's shares and (ii) either (a) a commitment to pay
such estimated fair value for such shares upon the transmittal to United
Cities of the relevant stock certificate or certificates or (b) if there is a
public market at which the shares may be readily sold, instructions to such
shareholder that he should sell his shares within 10 days after the delivery
of the statement. Such statement must be accompanied by United Cities'
consolidated balance sheet as of the end of a fiscal year ending not earlier
than 16 months before the delivery of the statement, United Cities'
consolidated statement of operations for such fiscal year and United Cities'
latest available interim financial statements. Since United Cities is not the
surviving corporation in the Merger, the option set forth in (ii)(b) of the
second sentence of this paragraph will not be available to a dissenting
shareholder.
If the shareholder is instructed in such statement to sell his shares and
fails to do so within 10 days after the delivery of such statement, then he
will be deemed, for purposes of the IBCA, to have sold his shares at the
average of the bid and asked prices of the shares quoted by The Nasdaq
National Market during such 10-day period.
If the dissenting shareholder does not agree with United Cities' opinion as
to the estimated fair value of his shares (or the amount of interest due), he
shall, within 30 days of the delivery of United Cities' statement of estimated
fair value, notify United Cities in writing of the shareholder's estimate of
fair value (and amount of interest due) and shall demand payment for the
difference between the shareholder's estimate of fair value (and interest due)
and either the amount of United Cities' payment or the proceeds from the sale
(or deemed sale) of the shares by the shareholder (depending on the procedure
elected by United Cities in its statement referred to above).
If the dissenting shareholder and United Cities have not agreed in writing
as to the value of the shares (and interest due) within 60 days of the
delivery of such shareholder's estimate of fair value to United Cities, then
United Cities must either (i) pay the difference in value demanded by the
shareholder or (ii) file an action in a
65
court of appropriate jurisdiction in Illinois asking for a determination by
the court of the fair value of the shares and interest due. All dissenting
shareholders whose demands for payment remain unsettled will be made parties
to the proceeding. Failure of United Cities to commence such an action will
not limit or affect the right of the dissenting shareholders to otherwise
commence an action as permitted by law. The court is authorized to appoint
appraisers to assist it in the determination of the fair value of the shares.
A dissenting shareholder retains all other rights of a shareholder until those
rights are canceled or modified by the consummation of the Merger.
Each dissenting shareholder will be entitled to judgment against United
Cities for the amount, if any, by which the court finds the fair value of such
shareholder's shares exceeds the value paid by United Cities for such shares
or the proceeds from the sale of such shares by such shareholder, as the case
may be, together with interest from the Closing Date to the date of payment at
a rate determined by the court to be fair and equitable. If the fair value
determined by the court materially exceeds the amount which United Cities
offers to pay, then all or part of the costs of the proceeding, including
reasonable compensation and expenses of the appraisers, if any, and experts
employed by any party, but excluding fees and expenses of counsel for any
party, may be assessed against United Cities.
Waiver of Appraisal Rights. A shareholder who votes to approve the Merger
waives all of his dissenters' rights with respect to the Merger. If a proxy is
returned but not voted "For," "Against" or "Abstain" with respect to approval
of the proposal to ratify and approve the Reorganization Agreement and approve
the Plan of Merger and the Merger, the proxy will be voted for such proposal,
and will thus constitute a waiver of dissenters' rights. A vote against the
proposal will not, by itself, satisfy the requirements with respect to any
written demand for payment referred to above. Such written demand must be in
addition to and separate from any proxy or vote against the proposal. Other
than as described above, shareholders will not be notified of the date by
which such demand must be made.
The rights of any shareholder to be paid the fair value of his shares (and
interest due) with respect to the Merger will terminate if for any reason the
Merger does not become effective or he fails to serve an appropriate timely
written demand upon United Cities.
Because United Cities will not be the surviving corporation in the Merger,
and because Atmos will succeed to and be vested with all of United Cities'
assets, rights, liabilities and obligations as a consequence of the Merger,
the references in the foregoing section to "United Cities" should be
considered as references to "Atmos" for any period after the Effective Time.
EACH OF THE ACTIONS SUMMARIZED ABOVE AND SET FORTH IN THE IBCA MUST BE TAKEN
IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE STATUTE IN ORDER
FOR ANY UNITED CITIES SHAREHOLDER TO PERFECT DISSENTERS' RIGHTS. ANY WRITTEN
OBJECTION, DEMAND OR NOTICE REQUIRED IN CONNECTION WITH THE EXERCISE OF
DISSENTERS' RIGHTS SHOULD BE SENT TO THE ATTENTION OF THE CORPORATE SECRETARY,
SHIRLEY M. HAWKINS, 5300 MARYLAND WAY, BRENTWOOD, TENNESSEE 37027. IT IS
RECOMMENDED THAT ALL REQUIRED DOCUMENTS TO BE DELIVERED TO UNITED CITIES BE
SENT BY REGISTERED MAIL WITH RETURN RECEIPT REQUESTED.
66
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the proposed merger of Atmos and United Cities on a pooling of
interests basis. The pooling of interests method of accounting assumes that
the combining companies were merged from inception and the historical
financial statements for the periods prior to consummation of the Merger are
restated as though the companies had been combined from inception. The pro
forma combined condensed balance sheet assumes that the Merger took place on
the balance sheet date and combines the June 30, 1996 balance sheets of Atmos
and United Cities, respectively. The pro forma combined condensed statements
of income for the nine month and twelve month periods ended June 30, 1996
include Atmos' and United Cities' results of operations for the periods then
ended. Since Atmos' year end is September 30 and United Cities' year end is
December 31, the pro forma combined condensed statements of income for the
years ended September 30, 1993, 1994, and 1995 include Atmos' results of
operations for the years then ended and United Cities' results of operations
for the years ended December 31, 1993, 1994, and 1995. As a result, United
Cities' results of operations for the three months ended December 31, 1995
(operating revenue of $105,446,000 and net income of $7,486,000) are included
in the pro forma statements of income for both the year ended September 30,
1995 and the nine month and twelve month periods ended June 30, 1996.
These pro forma combined condensed financial statements should be read in
conjunction with the accompanying notes, the historical financial statements
and notes of Atmos and the historical financial statements and notes of United
Cities which are incorporated herein by reference. The pro forma adjustments
are based upon available information and assumptions that management of Atmos,
through consultation with management of United Cities, believes are
reasonable. The pro forma combined condensed financial statements do not
purport to represent the financial position or results of operations which
would have occurred had the Merger been consummated on the dates indicated or
Atmos' financial position or results of operations for any future date or
period.
67
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
UNITED PRO FORMA
ATMOS CITIES ADJUSTMENTS PRO FORMA
-------- -------- ----------- ----------
(IN THOUSANDS)
ASSETS
Property, plant and equipment..... $650,995 $535,336 $ -- $1,186,331
Accumulated depreciation and amor-
tization......................... 252,300 188,419 -- 440,719
-------- -------- --------- ----------
Net property, plant and equip-
ment........................... 398,695 346,917 -- 745,612
Current assets
Cash and cash equivalents....... 2,153 5,391 -- 7,544
Accounts receivable............. 34,027 30,138 6,814 (a) 70,979
Inventories..................... 7,410 5,131 -- 12,541
Gas stored underground.......... 8,307 19,494 -- 27,801
Prepayments..................... 2,175 2,430 -- 4,605
Other current assets............ -- 7,837 (7,837)(a) --
-------- -------- --------- ----------
Total current assets.......... 54,072 70,421 (1,023) 123,470
Deferred charges and other as-
sets............................. 35,518 25,842 -- 61,360
-------- -------- --------- ----------
$488,285 $443,180 $ (1,023) $ 930,442
======== ======== ========= ==========
LIABILITIES AND SHAREHOLDERS' EQ-
UITY
Shareholders' equity
Common stock.................... $ 80 $105,812 $(105,746)(b) $ 146
Additional paid-in capital...... 110,139 22,462 105,746 (b) 238,347
Retained earnings............... 68,837 30,689 -- 99,526
-------- -------- --------- ----------
Total shareholders' equity.... 179,056 158,963 -- 338,019
Long-term debt.................... 125,303 158,192 -- 283,495
-------- -------- --------- ----------
Total capitalization.......... 304,359 317,155 -- 621,514
Current Liabilities
Current maturities of long-term
debt........................... 6,000 5,419 -- 11,419
Notes payable to banks.......... 36,100 9,404 -- 45,504
Accounts payable................ 30,196 25,081 -- 55,277
Taxes payable................... 11,137 12,601 -- 23,738
Customers' deposits............. 9,758 7,527 (1,023)(b) 16,262
Other current liabilities....... 16,287 20,958 -- 37,245
-------- -------- --------- ----------
Total current liabilities..... 109,478 80,990 (1,023) 189,445
Deferred income taxes............. 35,427 31,645 -- 67,072
Deferred credits and other liabil-
ities............................ 39,021 13,390 -- 52,411
-------- -------- --------- ----------
$488,285 $443,180 $ (1,023) $ 930,442
======== ======== ========= ==========
See accompanying notes to pro forma combined condensed financial statements.
68
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1993
(UNAUDITED)
UNITED PRO FORMA
ATMOS CITIES ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues................... $459,641 $335,253 $-- $794,894
Purchased gas cost................... 296,532 208,890 -- 505,422
-------- -------- ---- --------
Gross profit......................... 163,109 126,363 -- 289,472
Operating expenses
Operation.......................... 82,185 59,006 -- 141,191
Maintenance........................ 6,335 6,070 -- 12,405
Depreciation and amortization...... 17,433 17,130 -- 34,563
Taxes, other than income........... 16,806 10,285 -- 27,091
Income taxes....................... 10,073 5,681 -- 15,754
-------- -------- ---- --------
Total operating expenses......... 132,832 98,172 -- 231,004
-------- -------- ---- --------
Operating income..................... 30,277 28,191 -- 58,468
Other income
Interest income.................... 327 -- -- 327
Other, net......................... 239 1,043 -- 1,282
-------- -------- ---- --------
Total other income............... 566 1,043 -- 1,609
Interest charges..................... 13,299 17,084 -- 30,383
-------- -------- ---- --------
Net income........................... $ 17,544 $ 12,150 $-- $ 29,694
======== ======== ==== ========
Net income per share................. $ 1.22 $ 1.19 $-- $ 1.21
======== ======== ==== ========
Dividends per share.................. $ 0.85 $ 0.99 $-- $ 0.82(c)
======== ======== ==== ========
Average shares outstanding........... 14,338 10,197 -- 24,535
======== ======== ==== ========
See accompanying notes to pro forma combined condensed financial statements.
69
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1994
(UNAUDITED)
UNITED PRO FORMA
ATMOS CITIES ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues................... $499,808 $326,495 $-- $826,303
Purchased gas cost................... 331,571 197,711 -- 529,282
-------- -------- ---- --------
Gross profit......................... 168,237 128,784 -- 297,021
Operating expenses
Operation.......................... 92,132 60,221 -- 152,353
Maintenance........................ 5,888 6,005 -- 11,893
Depreciation and amortization...... 18,841 17,880 -- 36,721
Taxes, other than income........... 16,808 10,739 -- 27,547
Income taxes....................... 8,102 6,503 -- 14,605
-------- -------- ---- --------
Total operating expenses......... 141,771 101,348 -- 243,119
-------- -------- ---- --------
Operating income..................... 26,466 27,436 -- 53,902
Other income
Interest income.................... 168 -- -- 168
Other, net......................... 335 465 -- 800
-------- -------- ---- --------
Total other income............... 503 465 -- 968
Interest charges..................... 12,290 15,808 -- 28,098
-------- -------- ---- --------
Net income........................... $ 14,679 $ 12,093 $-- $ 26,772
======== ======== ==== ========
Net income per share................. $ 0.97 $ 1.16 $-- $ 1.05
======== ======== ==== ========
Dividends per share.................. $ 0.88 $ 1.01 $-- $ 0.91(c)
======== ======== ==== ========
Average shares outstanding........... 15,195 10,409 -- 25,604
======== ======== ==== ========
See accompanying notes to pro forma combined condensed financial statements.
70
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
YEAR ENDED SEPTEMBER 30, 1995
(UNAUDITED)
UNITED PRO FORMA
ATMOS CITIES ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues.................. $435,820 $313,736 $-- $749,556
Purchased gas cost.................. 268,810 180,588 -- 449,398
-------- -------- ---- --------
Gross profit........................ 167,010 133,148 -- 300,158
Operating expenses
Operation......................... 83,431 64,544 -- 147,975
Maintenance....................... 4,276 6,400 -- 10,676
Depreciation and amortization..... 20,741 19,865 -- 40,606
Taxes, other than income.......... 16,611 12,300 -- 28,911
Income taxes...................... 9,574 6,633 -- 16,207
-------- -------- ---- --------
Total operating expenses........ 134,633 109,742 -- 244,375
-------- -------- ---- --------
Operating income.................... 32,377 23,406 -- 55,783
Other income (expense)
Interest income................... 459 -- -- 459
Other, net........................ (242) 2,985 -- 2,743
-------- -------- ---- --------
Total other income.............. 217 2,985 -- 3,202
Interest charges.................... 13,721 16,456 -- 30,177
-------- -------- ---- --------
Net income.......................... $ 18,873 $ 9,935 $-- $ 28,808
======== ======== ==== ========
Net income per share................ $ 1.22 $ 0.84 $-- $ 1.06
======== ======== ==== ========
Dividends per share................. $ 0.92 $ 1.02 $-- $ 0.96(c)
======== ======== ==== ========
Average shares outstanding.......... 15,416 11,792 -- 27,208
======== ======== ==== ========
See accompanying notes to pro forma combined condensed financial statements.
71
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
UNITED PRO FORMA
ATMOS CITIES ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues.................. $415,143 $353,286 $-- $768,429
Purchased gas cost.................. 265,248 228,016 -- 493,264
-------- -------- ---- --------
Gross profit...................... 149,895 125,270 -- 275,165
Operating expenses
Operation......................... 62,022 49,971 -- 111,993
Maintenance....................... 3,154 4,964 -- 8,118
Depreciation and amortization..... 16,382 15,463 -- 31,845
Taxes, other than income.......... 13,446 9,790 -- 23,236
Income taxes...................... 15,715 13,621 -- 29,336
-------- -------- ---- --------
Total operating expenses........ 110,719 93,809 -- 204,528
-------- -------- ---- --------
Operating income.................... 39,176 31,461 -- 70,637
Other income (expense)
Interest income................... 70 -- -- 70
Other, net........................ (358) 3,166 -- 2,808
-------- -------- ---- --------
Total other income (expense).... (288) 3,166 -- 2,878
Interest charges.................... 10,956 12,730 -- 23,686
-------- -------- ---- --------
Net income.......................... $ 27,932 $ 21,897 $-- $ 49,829
======== ======== ==== ========
Net income per share................ $ 1.76 $ 1.70 $-- $ 1.73
======== ======== ==== ========
Dividends per share................. $ 0.72 $ 0.765 $-- $ 0.74(c)
======== ======== ==== ========
Average shares outstanding.......... 15,855 12,897 -- 28,752
======== ======== ==== ========
See accompanying notes to pro forma combined condensed financial statements.
72
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
TWELVE MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
UNITED PRO FORMA
ATMOS CITIES ADJUSTMENTS PRO FORMA
-------- -------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating revenues................. $491,136 $393,469 $-- $884,605
Purchased gas cost................. 311,359 249,944 -- 561,303
-------- -------- ---- --------
Gross profit..................... 179,777 143,525 -- 323,302
Operating expenses
Operation........................ 82,334 66,805 -- 149,139
Maintenance...................... 4,206 6,504 -- 10,710
Depreciation and amortization.... 21,623 20,590 -- 42,213
Taxes, other than income......... 16,767 12,521 -- 29,288
Income taxes..................... 13,756 9,303 -- 23,059
-------- -------- ---- --------
Total operating expenses....... 138,686 115,723 -- 254,409
-------- -------- ---- --------
Operating income................... 41,091 27,802 -- 68,893
Other income (expense)
Interest income.................. 146 -- -- 146
Other, net....................... (604) 3,724 -- 3,120
-------- -------- ---- --------
Total other income (expense)... (458) 3,724 -- 3,266
Interest charges................... 14,331 16,545 -- 30,876
-------- -------- ---- --------
Net income......................... $ 26,302 $ 14,981 $-- $ 41,283
======== ======== ==== ========
Net income per share............... $ 1.67 $ 1.17 $-- $ 1.44
======== ======== ==== ========
Dividends per share................ $ 0.95 $ 1.02 $-- $ 0.98 (c)
======== ======== ==== ========
Average shares outstanding......... 15,767 12,819 -- 28,586
======== ======== ==== ========
See accompanying notes to pro forma combined condensed financial statements.
73
ATMOS ENERGY CORPORATION AND UNITED CITIES GAS COMPANY
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. MERGER
Pursuant to the terms of the Reorganization Agreement, when the Merger
becomes effective, each outstanding share of United Cities Stock will be
converted into the right to receive one share of Atmos Stock. The pro forma
financial statements assume the issuance of the Atmos Stock in connection with
the Merger and that the transaction will be accounted for as a pooling of
interests. The pro forma statements of income do not include the estimated
expenses of $12.0 million relating to the Merger expected to be incurred
during the twelve month period subsequent to June 30, 1996.
The pro forma combined condensed balance sheet assumes that the Merger took
place on the balance sheet date and combines the June 30, 1996 balance sheets
of Atmos and United Cities, respectively.
The pro forma combined condensed statements of income for the nine and
twelve months ended June 30, 1996 include Atmos' and United Cities' results of
operations for the periods then ended. The pro forma combined condensed
statements of income for the years ended September 30, 1993, 1994, and 1995
include Atmos' results of operations for the years then ended and United
Cities' results of operations for its fiscal years endedDecember 31, 1993,
1994, and 1995, respectively. As a result, United Cities' results of
operations for the three months ended December 31, 1995 (operating revenue of
$105,446,000 and net income of $7,486,000) are included in the pro forma
combined condensed statements of income for the year ended September 30, 1995
and the nine month and twelve month periods ended June 30, 1996.
2. PRO FORMA ADJUSTMENTS
The pro forma adjustments in the accompanying unaudited pro forma combined
condensed financial statements are listed below. Certain reclassifications
have been made to make classifications for similar items consistent between
the companies.
(a) To reclassify the United Cities customer prepayments (pursuant to the
budget billing plan) and gas costs to be billed in the future to
receivables to conform account classification to the classification
of Atmos.
(b) To adjust common stock to reflect the shares of Atmos Stock (stated
value of $.005) to be issued in exchange for the shares of United
Cities Stock.
(c) Dividends per share are calculated by totaling the actual dividends
paid by Atmos and United Cities and dividing the result by the total
of the weighted average shares outstanding for each period presented.
Atmos' historical dividends per share of $.88 for the year ended
September 30, 1994 and $.85 for the year ended September 30, 1993
reflect Atmos' dividends declared per share as adjusted for a 3-for-2
stock split in May 1994. In fiscal 1994, Atmos also acquired Greeley
Gas Company ("GGC") in a merger. The restated dividends and
distributions per share including GGC were $.84 and $.71 for fiscal
1994 and 1993, respectively. Such restated amounts include dividends
and distributions paid by Atmos and GGC, divided by weighted average
shares outstanding as restated for the shares issued to effect the
GGC merger. This restated number of shares outstanding is consistent
with the shares used in the computation of pro forma dividends per
share. The pro forma dividends per share do not purport to represent
the dividend rate for any future date or period.
74
MANAGEMENT OF ATMOS FOLLOWING THE MERGER
DIRECTORS
Pursuant to the Plan of Merger, at the Effective Time, the Board of
Directors of Atmos will consist of15 members, 11 of whom will be the directors
of Atmos in office at the Effective Time, and four of whom will be the United
Cities Designees, Messrs. Koonce, Lewis, Garland and Cardin, each of whom is
currently a director of United Cities. Each of the Atmos directors in office
immediately prior to the Effective Time will continue to serve in the class
and for the term he was serving at the Effective Time. See "The Reorganization
Agreement and The Merger--Directors and Officers," "--Election of Directors"
and "--Interests of Certain Persons in the Merger." With respect to each
person who will be a director of Atmos at the Effective Time, the following
table lists his name, age, year in which he first became a director of Atmos
and class designation:
YEAR IN WHICH
FIRST BECAME A CLASS DESIGNATION
DIRECTOR AND YEAR OF
NAME AGE OF ATMOS EXPIRATION OF TERM
---- --- -------------- ------------------
Travis W. Bain II...................... 61 1988 Class I
1999
Dan Busbee............................. 62 1988 Class I
1999
John W. Norris, Jr..................... 59 1987 Class I
1999
Gene C. Koonce......................... 64 * Class I
1999
Vincent J. Lewis....................... 51 * Class I
1999
Thomas C. Meredith..................... 54 1995 Class II
1997
Robert F. Stephens..................... 48 1995 Class II
1997
Carl S. Quinn.......................... 64 1994 Class II
1997
Richard Ware II........................ 49 1994 Class II
1997
Richard W. Cardin...................... 60 * Class II
1997**
James F. Purser........................ 45 1995 Class III
1998
Phillip E. Nichol...................... 60 1985 Class III
1998
Lee E. Schlessman...................... 69 1994 Class III
1998
Charles K. Vaughan..................... 58 1983 Class III
1998
Thomas J. Garland...................... 61 * Class III
1998
75
- --------
* Indicates that person will become a director of Atmos at the Effective
Time.
** Will become a director in Class II with a term expiring in 1997 if the
Merger is consummated prior to the annual meeting of shareholders of Atmos
scheduled for February 12, 1997, or for a term expiring in 2000, if the
Merger is consummated after such date.
OFFICERS
Following the Effective Time, the officers of Atmos will be the officers of
Atmos immediately prior to the Effective Time and three United Cities
officers. Messrs. Gene C. Koonce, James B. Ford and Thomas R. Blose, Jr., the
President and Chief Executive Officer, the Senior Vice President and
Treasurer, and the Senior Vice President--Operations and Engineering,
respectively, of United Cities, will become officers of Atmos after the
Merger. See "Incorporation of Certain Information by Reference" and "The
Reorganization Agreement and The Merger--Directors and Officers," "--Election
of Directors" and "--Interests of Certain Persons in the Merger." The
following table lists the name, age and present position with Atmos for each
current officer of Atmos and the name, age and position to be held with Atmos
for each of the three United Cities officers who will become officers of Atmos
at the Effective Time:
Current Atmos Officers:
NAME AGE POSITION WITH ATMOS
---- --- -------------------
Robert F. Stephens...... 48 President and Chief Operating Officer
James F. Purser......... 45 Executive Vice President and Chief Financial Officer
J. Charles Goodman...... 35 Executive Vice President, Corporate Operations
H.F. Harber............. 54 Senior Vice President, Corporate Services
Donald E. James......... 49 Senior Vice President, Public Affairs
Mary S. Lovell.......... 45 Senior Vice President, Utility Services
David L. Bickerstaff.... 40 Vice President and Controller
Glen A. Blanscet........ 39 Vice President, General Counsel and Corporate Secretary
O. Carl Brown........... 49 Vice President, Financial and Strategic Planning
Lee A. Everett.......... 44 Vice President, Rates and Regulatory Affairs
Jack W. Eversull........ 53 Vice President, Investor Relations
Cleaburne H. Fritz...... 50 Vice President, Information Services
Dan L. Lindsey.......... 45 Vice President, Technical Services
Wynn D. McGregor........ 43 Vice President, Human Resources
R. Eugene Mattingly..... 48 Vice President, Marketing
Gordon J. Roy........... 46 Vice President, Gas Supply
Carl W. Weller.......... 61 Treasurer
United Cities Officers to become Atmos Officers at the Effective Time:
NAME AGE POSITION WITH ATMOS AT THE EFFECTIVE TIME
---- --- -----------------------------------------
Gene C. Koonce.......... 64 Vice Chairman of the Board
James B. Ford........... 54 Senior Vice President--Finance
Thomas R. Blose, Jr..... 47 President of United Cities Operating Division and Vice President of Atmos
76
For additional information regarding the executive officers of Atmos,
reference is made to the caption "Executive Officers of Atmos" in Part I of
the Atmos Form 10-K for its fiscal year ended September 30, 1995. Similar
information regarding Atmos' directors, as well as additional information
regarding directors and certain executive officers, including executive
compensation and certain relationships and related transactions, is
incorporated by reference to Items 10, 11, 12, and 13 of the Atmos Form 10-K
(which incorporates portions of Atmos' proxy statement dated December 27,
1995), all of which are incorporated herein by reference. See "Incorporation
of Certain Information by Reference."
For additional information regarding the executive officers of United
Cities, reference is made to the caption "Executive Officers of the Company"
in Part I of the United Cities Form 10-K for its fiscal year ended December
31, 1995. Similar information regarding United Cities' directors, as well as
additional information regarding directors and certain executive officers,
including executive compensation, is incorporated by reference to Items 10,
11, 12, and 13 of the United Cities Form 10-K (which incorporates portions of
United Cities' proxy statement dated April 1, 1996), all of which are
incorporated herein by reference. See "Incorporation of Certain Information by
Reference."
77
UNITED CITIES STOCK PLAN
General. Following the Effective Time, Atmos will continue in effect the
United Cities Stock Plan.
Administration. The United Cities Stock Plan is currently administered by
the compensation committee of the Board of Directors of United Cities, which
is comprised of Messrs. Ballengee, Garland, Newberry and Woodruff. Following
the Effective Time, the United Cities Stock Plan will be administered by the
Human Resources Committee of the Board of Directors of Atmos, which is
comprised of Messrs. Bain, Busbee, Nichol, Norris and Quinn (as applicable,
the "Committee"). The Committee has sole authority to administer and interpret
the United Cities Stock Plan. Although no future awards are contemplated under
the United Cities Stock Plan, the Committee, within the terms of the United
Cities Stock Plan, may make decisions concerning the acceleration of payments
and vesting of existing awards under the United Cities Stock Plan.
Shares Available. The United Cities Stock Plan provides that the aggregate
number of shares of United Cities Stock which may be subject to award may not
exceed 250,000, subject to adjustment in certain circumstances to prevent
dilution. At October 2, 1996, stock options covering a total of 139,100 shares
of United Cities Stock, and stock appreciation rights with respect to 8,820
shares of United Cities Stock, were outstanding. Holders of options under the
United Cities Stock Plan will, after the Effective Time, be allowed to
exercise their options for shares of Atmos Stock at the Exchange Ratio.
Holders of stock appreciation rights under the United Cities Stock Plan will
also be allowed to exercise such rights based on the price of Atmos Stock,
taking into account such Exchange Ratio. Atmos does not anticipate making any
additional grants after the Merger under the United Cities Stock Plan. At the
discretion of the Committee, the stock delivered under the United Cities Stock
Plan may be authorized and unissued shares, treasury stock or shares purchased
on the open market.
Eligibility. The United Cities Stock Plan provides for awards to key
employees who, in the judgment of the Committee, functioned in capacities
which could contribute materially to the growth and prosperity of United
Cities and its subsidiaries. Outstanding awards under the plan were made to
the employees and groups of employees listed in the table entitled "New Plan
Benefits" set forth below.
Stock Options. The United Cities Stock Plan provides for options which would
qualify as incentive stock options, as defined in the Code ("Incentive Stock
Options") and options which do not so qualify ("Non-qualified Stock Options").
The Committee is empowered to determine whether the options granted will be
Incentive Stock Options or Non-qualified Stock Options, the number of shares
subject to each such stock option and the manner and time of exercise. The
option price per share can be no less than the fair market value (as defined
in the United Cities Stock Plan) of a share of United Cities Stock on the date
of grant of the award. All options granted under the United Cities Stock Plan
are required to expire no later than 10 years from the date of grant. All
existing options under the United Cities Stock Plan will expire on or before
May 3, 2006. Subject to the limitations set forth in the United Cities Stock
Plan, following the Effective Time, any option may be exercised by payment to
Atmos of cash or by surrender of shares of Atmos Stock already owned by the
employee or a combination of cash and such shares. Options are evidenced by
stock option agreements in form approved by the Committee, which contain such
additional limitations, terms and conditions, in addition to the restrictions
set forth in the United Cities Stock Plan, as the Committee otherwise deems
desirable.
The United Cities Stock Plan limits or prohibits the exercise of options
under certain circumstances upon or after termination of employment or in the
event of a participant's death, disability, retirement or termination
associated with a Change in Control (as defined in the United Cities Stock
Plan). Options are non-transferrable except by will or in accordance with
applicable laws of descent and distribution. An option does not accord the
employee the rights of a shareholder and such rights accrue only upon and
after the exercise of an option and the registration of shares of stock in the
employee's name.
Restricted Stock. The United Cities Stock Plan provides for the award of
shares of United Cities Stock, subject to certain restrictions ("Restricted
Stock") provided in the United Cities Stock Plan or otherwise
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determined by the Committee. No shares of Restricted Stock are currently
outstanding under the United Cities Stock Plan.
Stock Appreciation Rights. The Committee is authorized to and has granted
stock appreciation rights to employees. Such stock appreciation rights were
granted in connection with the simultaneous award of a stock option and
entitle the holder to surrender the related option in whole or in part (to the
extent such option is otherwise exercisable) and to receive from United Cities
(or, following the Effective Time, from Atmos) an amount equal to the excess,
if any, of the aggregate fair market value of the United Cities Stock (or the
Atmos Stock) which is the subject of such option over the option price
therefor. The stock appreciation rights outstanding under the United Cities
Stock Plan are reflected in the New Benefits Table set forth below.
Following the Effective Time, Atmos may make payment of the amount to which
the employee exercising a stock appreciation right is entitled by delivering
shares of Atmos Stock or cash or any combination thereof, as the Committee in
its sole discretion may determine. Stock appreciation rights are not
transferrable except by will or applicable laws of descent and distribution
and are transferrable only in conjunction with a permitted transfer of the
option to which the stock appreciation right relates and only to the
transferee of the option. Stock appreciation rights are exercisable during the
lifetime of the employee to whom they are granted only by such employee.
Federal Income Tax Treatment. A recipient of a stock option granted under
the United Cities Stock Plan did not realize any taxable income upon the grant
of such option, and United Cities is not entitled to any tax deduction for
income tax purposes. Upon the exercise of an Incentive Stock Option following
the Effective Time, the employee will not realize any taxable income and Atmos
will not be entitled to any tax deduction for income tax purposes. If the
employee holds the Atmos Stock more than two years from the date of grant and
one year from the date of exercise, the employee's gain or loss will be
recognized as a capital gain or loss at the time the stock purchased pursuant
to the option is sold or otherwise disposed of and Atmos will not be entitled
to any deduction in computing its taxable income as a result of the grant or
exercise of the option. If these holding requirements are not met, in general,
the employee will recognize ordinary taxable income and Atmos will be entitled
to a deduction measured by the excess of the fair market value of the shares
of Atmos Stock at the time of exercise or disqualifying sale over the option
price, whichever produces a lesser gain to the optionee. Upon the exercise of
a Non-qualified Stock Option following the Effective Time, the employee will
realize taxable ordinary income equal to the excess of the fair market value
of the shares of Atmos Stock on the date the option is exercised over the
option price and Atmos will be entitled to a corresponding deduction.
An employee who was granted stock appreciation rights under the United
Cities Stock Plan did not realize any taxable income upon the grant of such
stock appreciation rights, and United Cities was not entitled to any tax
deduction for income tax purposes. However, when such employee exercises stock
appreciation rights following the Effective Time, the fair market value of the
Atmos Stock issued or transferred to such employee, together with the amount
of cash paid to such employee, if any, by Atmos is taxable to such employee as
ordinary income. Atmos would be entitled to a corresponding deduction for the
taxable year in which the stock appreciation right is exercised.
Amendment and Termination. Following the Effective Time, the Board of
Directors of Atmos may terminate the United Cities Stock Plan at any time or,
with the consent of an individual participant, cancel, reduce or alter the
outstanding awards made to him thereunder. The Board of Directors may amend or
suspend or, if suspended, reinstate, the United Cities Stock Plan in whole or
in part, provided, however, that without further shareholder approval, the
Board of Directors cannot (i) increase the number of shares of stock on which
awards may be granted under the United Cities Stock Plan (except for increases
permitted to prevent any dilutive effect of certain corporate transactions),
(ii) change the manner of determining the option price or manner of
determining the amount payable upon exercise of a stock appreciation right or
otherwise materially increase benefits accruing to employees under the United
Cities Stock Plan, (iii) change the class of employees eligible to participate
or modify the requirements as to eligibility for participation in the United
Cities Stock Plan or (iv) withdraw administration of the United Cities Stock
Plan from the Committee or permit any person, while a
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member of the Committee, to be eligible to receive and hold an option, a stock
appreciation right or Restricted Stock granted under the United Cities Stock
Plan.
Outstanding Grants. The following table provides information as of October
2, 1996 regarding stock option and stock appreciation right grants under the
United Cities Stock Plan to the chief executive officer of United Cities, the
two most highly compensated executive officers (other than the chief executive
officer) of United Cities in 1995 who will become officers of Atmos following
the Merger, all current United Cities executive officers who will become
officers of Atmos following the Merger as a group and all United Cities
employees as a group:
NEW PLAN BENEFITS
UNITED CITIES STOCK PLAN
NO. OF SHARES
UNDERLYING MARKET VALUE OF UNDERLYING
OPTIONS AND STOCK SECURITIES AND SARS
APPRECIATION EXERCISE PRICE EXPIRATION -------------------------------
NAME AND POSITION(A) RIGHTS(B) ($/SHARE) DATE EXERCISABLE UNEXERCISABLE
-------------------- ----------------- -------------- ---------- --------------- ---------------
Gene C. Koonce.......... 30,720 $12.50--$16.00 1999-2006 $121,598/14,520 $113,550/16,200
President and Chief
Executive Officer
James B. Ford........... 11,000 $15.50--$16.00 2004-2006 $ 17,700/2,600 $ 58,800/8,400
Senior Vice President
and Treasurer
Thomas R. Blose, Jr. ... 19,100 $12.50--$16.00 1999-2006 $ 91,781/10,700 $ 58,800/8,400
Senior Vice President--
Operations and
Engineering
All executive officers
as a group (3
persons)............... 60,820 $12.50--$16.00 1999-2006 $231,079/27,820 $231,150/33,000
All employees including
officers who are not
executive officers as a
group (15 persons)..... 87,100 $12.50--$16.00 1999-2006 $212,850/26,200 $428,925/60,900
- --------
(a) No person received or is entitled to receive 5% or more of the options,
stock appreciation rights or restricted stock granted under the United
Cities Stock Plan.
(b) Each stock appreciation right has been granted in connection with the
simultaneous grant of a stock option. Exercise of a stock appreciation
right requires surrender of the associated option.
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COMPARISON OF SHAREHOLDER RIGHTS
Atmos is incorporated in the State of Texas, and United Cities is
incorporated in the State of Illinois and the Commonwealth of Virginia. As a
result of the Merger, Atmos will become a corporation incorporated in the
State of Texas and the Commonwealth of Virginia, and holders of United Cities
Stock will become shareholders of Atmos. After the Effective Time of the
Merger, the rights of shareholders of Atmos will be governed by the laws of
Texas and Virginia, Atmos' Restated Articles of Incorporation (as amended
pursuant to the Plan of Merger) and its Bylaws.
POST-MERGER ARTICLES OF INCORPORATION AND BYLAWS
Atmos is incorporating in the Commonwealth of Virginia in order to comply
with a Virginia statute requiring utilities operating in Virginia to be
incorporated under the laws of that state. The amendments to the Restated
Articles of Incorporation are being adopted in order to comply with the VSCA,
which requires that certain items be stated in a Virginia corporation's
articles of incorporation, which under Texas law are not currently required to
be stated in Atmos' Restated Articles of Incorporation or are stated in its
Bylaws. None of these amendments will result in a substantive change in Atmos'
method of corporate governance. The Plan of Merger will amend the Restated
Articles of Incorporation of Atmos to provide that (i) Atmos will be
incorporated under the laws of the State of Texas and the Commonwealth of
Virginia and (ii) the purpose for which the corporation is organized is the
transaction of any or all lawful business for which corporations may be
incorporated under the TBCA, including, but not limited to, the transportation
and distribution of natural gas by pipeline as a public utility, except that
with respect to the Commonwealth of Virginia, the corporation may only conduct
such business as is permitted to be conducted by a public service company
engaged in the transportation and distribution of natural gas by pipeline. In
addition, the Plan of Merger will further amend the Atmos Restated Articles of
Incorporation in certain respects to conform to Virginia law to provide (i)
for the elimination or limitation of the personal liability of a director to
the fullest extent permitted by both the TBCA and the VSCA, as the same may be
amended from time to time, (ii) for a classified board, (iii) that the payment
of dividends on Atmos Stock is subject to the statutory limitations of the
TBCA and the VSCA and (iv) for a registered agent and registered office in
Virginia. The amendment relating to the limitation of the personal liability
of a director amends the currently existing limitation of liability provision
contained in Atmos' Restated Articles of Incorporation to provide that such
provision is subject to the restrictions imposed under the TBCA and the VSCA.
For the text of the proposed amendments, see the Plan of Merger attached as an
exhibit to the Reorganization Agreement.
The Bylaws of Atmos will not be amended under the Plan of Merger and will
remain in effect in their present form until subsequently amended. It is
contemplated that some time after the Effective Time the Bylaws of Atmos will
be amended by the Atmos Board of Directors in certain respects to conform to
Virginia law. Some of the significant amendments to the Bylaws of Atmos which
may be made include amendments to (i) increase the minimum notice period for
shareholder meetings to consider and vote on certain extraordinary corporate
transactions, (ii) provide that any director elected by the board to fill a
vacancy can serve only until the next shareholders meeting at which directors
are elected, (iii) limit the ability of the board to increase its size to an
increase of no more than 30% between meetings of shareholders and (iv) provide
for the greater delegation of authority to committees of the board.
Certain differences, including material differences, exist (i) between the
rights of Atmos' shareholders before and after the Effective Time and (ii)
between the rights of United Cities shareholders before and after the
Effective Time, and are set forth below. After the Effective Time, in the
event differences between Texas and Virginia corporate law exist with respect
to any particular matter, in general, the law of the state providing the
greater rights and protections to Atmos shareholders or requiring the higher
level of compliance by Atmos or requiring the higher vote of shareholders will
govern.
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This summary is not intended to be relied upon as an exhaustive list of
differences or a detailed description and analysis of the provisions discussed
and is qualified in its entirety by reference to the TBCA, the IBCA, the VSCA
and by the Restated Articles of Incorporation and Bylaws of Atmos, the
Articles of Incorporation and Bylaws of United Cities and the Plan of Merger.
See "Available Information."
AUTHORIZED CAPITAL STOCK
Atmos. The authorized capital stock of Atmos consists of 75,000,000 shares
of common stock, no par value. Each share of Atmos Stock is entitled to one
vote on all matters voted upon by shareholders. Holders of Atmos Stock do not
have cumulative voting rights. The shares of Atmos Stock issued and
outstanding are, and those to be issued in connection with the Merger will be,
fully paid and nonassessable. There are no redemption or sinking fund
provisions applicable to the shares of Atmos Stock and such shares are not
entitled to any preemptive rights.
Holders of shares of Atmos Stock are entitled to receive such dividends as
may be declared from time to time by the Atmos Board of Directors from the
assets of Atmos legally available therefor and, upon any liquidation of Atmos,
a pro rata share of all assets of Atmos available for distribution to
shareholders.
Under the provisions of its loan agreements, Atmos has agreed to
restrictions on the payment of cash dividends. Under the restrictions, Atmos'
cumulative cash dividends paid after September 30, 1988 may not exceed the sum
of 75% of accumulated consolidated net income of Atmos and its subsidiaries
for periods after September 30, 1988 plus 100% of the net cash proceeds from
the issuance of capital stock after such date, plus $12,000,000. As of June
30, 1996, $62,246,000 was available for the declaration of dividends. See "The
Reorganization Agreement and The Merger--Representations, Warranties and
Covenants" and "--Atmos Dividends."
The registrar and transfer agent for the Atmos Stock is The First National
Bank of Boston.
Each share of Atmos Stock carries with it, and each share of Atmos Stock to
be issued in connection with the Merger will carry with it, a right issued
under Atmos' Rights Plan to purchase shares of Atmos Stock or other securities
in certain situations. Such rights are not currently exercisable. See
"Comparison of Shareholder Rights--Anti-Takeover Provisions."
United Cities. The authorized capital stock of United Cities consists of
40,000,000 shares of common stock, no par value, and 200,000 shares of
preferred stock, no par value. There are currently no shares of such preferred
stock outstanding. The United Cities Board of Directors is empowered to
designate the rights and preferences for any series of preferred stock issued.
Each share of United Cities Stock is entitled to one vote on all matters voted
upon by shareholders. Cumulative voting in the election of directors is
permitted. The shares of United Cities Stock issued and outstanding are fully
paid and nonassessable. There are no redemption or sinking fund provisions
applicable to the shares of United Cities Stock, and such shares are not
entitled to any preemptive rights.
Subject to the preferential rights, if any, of any preferred stock that may
be issued in the future, holders of shares of United Cities Stock are entitled
to receive such dividends as may be declared from time to time by United
Cities' Board of Directors from the assets of United Cities legally available
therefor and, upon any liquidation of United Cities, a pro rata share of all
assets of United Cities available for distribution to shareholders.
United Cities currently has outstanding seven series of first mortgage bonds
(Series N, P, Q, R, T, U and V) issued pursuant to an Indenture of Mortgage
dated July 15, 1959, as amended and supplemented by twenty indentures
supplemental thereto (the "Indenture"). Under the provisions of the Indenture,
United Cities may not declare or pay any dividends or directly or indirectly
purchase, redeem or otherwise acquire any shares of common stock (except out
of the net cash proceeds derived from the issuance of other shares of common
stock),
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or make any other distribution on shares of common stock (the "Restricted
Payments"), unless after giving effect thereto, the aggregate amount of all
such Restricted Payments made during the period from December 31, 1985, to and
including the date of the making of the Restricted Payment in question, does
not exceed the sum of $9,000,000 plus (or minus in case of a deficit) the
amount of Consolidated Net Income Available for Common Stock Dividends, as
defined below, for such period in the case of bonds issued prior to January
26, 1990. In the case of bonds issued on or after January 26, 1990, the
Indenture contains a similar provision but prohibits the making of Restricted
Payments during the period from December 31, 1988 in excess of the sum of
$15,038,000 plus (or minus in the case of a deficit) the amount of
Consolidated Net Income Available for Common Stock Dividends for such period.
The Indenture defines "Consolidated Net Income Available for Common Stock
Dividends" for any period as the net income of United Cities and its
subsidiaries for such period available for dividends on capital stock, after
deducting therefrom dividends paid and accrued during such period on preferred
stock, determined on a consolidated basis in accordance with generally
accepted accounting principles. However, no effect shall be given to any gains
or losses or other additions or deductions arising by reason of the issue,
purchase, sale, conversion or retirement by United Cities or any subsidiary of
any of its or their securities, or arising by reason of any purchases, sales,
write-ups, write-downs, increase or decrease in book value, or other
transactions or changes in respect of capital assets, tangible or intangible,
and deductions for income taxes shall be adjusted by giving effect to any
change in the amount thereof resulting from the elimination of any of the
capital transactions or changes referred to above.
AMENDMENTS TO CHARTER
Atmos. The TBCA requires that amendments to a corporation's articles of
incorporation be approved by the board of directors and then by the
affirmative vote of the holders of at least two-thirds of the outstanding
shares entitled to vote thereon, unless the articles of incorporation provide
for a greater or lesser (but not less than a majority) vote. Atmos' Restated
Articles of Incorporation do not alter the vote required under the TBCA to
adopt amendments thereto, except that no amendment may be made to Article VII
of Atmos' Restated Articles of Incorporation, providing certain "fair price
provisions" for shareholders, without the affirmative vote of the holders of
at least 75% of the outstanding shares of Atmos entitled to vote thereon (and
the affirmative vote of at least 75% of the outstanding shares of voting stock
held by shareholders other than a Substantial Shareholder (as defined
therein)). See "Comparison of Shareholder Rights--Anti-Takeover Provisions."
United Cities. Under the IBCA, amendments to the articles of incorporation
must be approved by the board of directors and then by the vote of the holders
of at least two-thirds of the outstanding shares, unless the articles of
incorporation provide for a greater or lesser (but not less than a majority)
vote. The VSCA requires that amendments to the articles of incorporation be
approved by the board of directors and then by the vote of the holders of more
than two-thirds of the outstanding shares entitled to vote thereon, unless the
articles of incorporation provide for a greater or lesser (but not less than a
majority) vote. United Cities' Articles of Incorporation generally require
that any amendment thereto must receive the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote and thereby reduce the
shareholder approval requirement from that required by the IBCA and the VSCA.
However, certain provisions of United Cities' Articles of Incorporation
require a higher percentage for amendment. Article Seven of United Cities'
Articles of Incorporation, concerning the vote required for certain business
combinations, requires that any amendment to that section be approved by the
affirmative vote of the holders of at least 80% of the outstanding shares of
United Cities entitled to vote. See "Comparison of Shareholder Rights--Anti-
Takeover Provisions."
AMENDMENTS TO BYLAWS
Atmos. Under the TBCA, bylaws may be approved or amended by either the board
of directors or the shareholders, unless that power is reserved to the
shareholders in the articles of incorporation. Atmos' Restated Articles of
Incorporation provide that the Bylaws may be amended only by the Atmos Board
of Directors, subject
83
to repeal or change by vote of the holders of at least 75% of the outstanding
shares of Atmos Stock entitled to vote thereon.
United Cities. Under the VSCA and the IBCA, bylaws may be approved or
amended by either the board of directors or the shareholders, unless that
power is reserved to the shareholders in the articles of incorporation. United
Cities' Articles of Incorporation provide that the Bylaws of United Cities may
be amended by a vote of the holders of at least two-thirds of the outstanding
shares of United Cities entitled to vote or by a vote of two-thirds of United
Cities' entire Board of Directors.
ELECTION AND REMOVAL OF DIRECTORS
Atmos. Under the TBCA, a corporation's bylaws may provide for a classified
board of either two or three classes, each class to be as nearly equal in
number as possible. The Board of Directors of Atmos is divided into three
classes, each of which consists, as nearly as may be possible, of one-third of
the total number of directors constituting the entire Board. The Board may, in
its discretion, eliminate this classification. There are currently 11
directors serving on the Board. Following the Merger there will be 15
directors. Each class of directors serves a three-year term. At each annual
meeting of shareholders, successors to the class of directors whose term
expires at the annual meeting are elected for three-year terms. Atmos'
Restated Articles of Incorporation prohibit cumulative voting. In general, in
the absence of cumulative voting, one or more persons who hold a majority of
the outstanding shares can elect all of the directors who are subject to
election at any meeting of shareholders.
The TBCA also provides that the bylaws or articles of incorporation may
permit the removal of a director with or without cause at a meeting of
shareholders called expressly for that purpose by the vote of the holders of a
majority of the outstanding shares entitled to vote at an election of
directors, subject to certain limitations in the case of cumulative voting or
the rights of any group of shareholders to elect one or more directors. Atmos'
Restated Articles of Incorporation and Bylaws provide that a director of Atmos
may be removed only for cause and upon the affirmative vote of the holders of
at least 75% of the shares then entitled to vote at an election of directors.
Under the TBCA and Atmos' Bylaws, any vacancy occurring on the board of
directors may be filled by a majority of the remaining members of the board of
directors, though less than a quorum, or at an annual or special meeting of
the shareholders. A vacancy occurring because of an increase in the number of
directors may be filled in a similar manner, provided that the board of
directors may not fill more than two such vacancies between any two successive
annual meetings. A director appointed by the board to fill a vacancy resulting
from an increase in the number of directors holds office only until the next
meeting of shareholders at which directors are to be elected, whereas a
replacement director holds office for the balance of the term which he was
elected to fill.
United Cities. The IBCA provides that, if the board of directors consists of
six or more members, the articles of incorporation or bylaws may provide for a
classified board of either two or three classes, each class to be as nearly
equal in number as is possible. Corporations such as United Cities that were
incorporated prior to December 31, 1981, may not deny cumulative voting. Under
the VSCA, the articles of incorporation may provide for a classified board
with members divided into two or three groups with staggered terms. If the
articles of incorporation permit cumulative voting, then at least three of
that corporation's directors must be elected at each annual shareholders
meeting. Under United Cities' Articles of Incorporation, the Board of
Directors of United Cities is divided into three classes, each of which
consists, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board. There are currently 11 directors
serving on the Board. Each class of directors serves a three-year term. At
each annual meeting of shareholders, successors to the class of directors
whose term expires at the annual meeting are elected for three-year terms. In
the case of a corporation having cumulative voting (like United Cities), a
shareholder cumulating his votes may in certain instances be able to elect a
minority of the corporation's directors.
84
The IBCA provides that one or more directors may be removed, with or without
cause, at a meeting of shareholders by the affirmative vote of the holders of
a majority of the outstanding shares entitled to vote. The VSCA permits the
removal of a director with or without cause by a vote of the shareholders, at
a meeting called for the purpose of removing the director, unless the articles
of incorporation provide that a director may only be removed for cause. In the
case of a corporation having cumulative voting (like United Cities), under
both the IBCA and the VSCA, if less than the entire board is to be removed, no
director may be removed, with or without cause, if the votes cast against his
or her removal would be sufficient to elect him or her cumulatively at an
election of the entire board of directors. United Cities' Bylaws provide that
a director of United Cities may be removed at any special meeting of the
shareholders called for the purpose of removing the director by the
affirmative vote of the holders of a majority of the shares then entitled to
vote at an election of directors. However, Article Eight of the Articles of
Incorporation of United Cities provides that the holders of at least 70% of
the voting power of the then outstanding shares of capital stock of United
Cities entitled to vote generally in the election of directors is required to
constitute a quorum for any special meeting of the shareholders at which a
vote upon the removal of one or more directors is to occur.
Under the IBCA, any vacancies on the board of directors may be filled at an
annual or special meeting of the shareholders. The bylaws may provide a method
for filling vacancies arising between meetings of shareholders due to an
increase in the number of directors or otherwise, and in the absence of such a
provision, the board of directors may fill the vacancy. However, a director
appointed by the board to fill the vacancy holds office only until the next
meeting of shareholders at which directors are to be elected, whereas a
replacement director elected by the shareholders holds office for the balance
of the term he or she was elected to fill. Under the VSCA, unless the articles
of incorporation provide otherwise, any vacancies on the board of directors
may be filled by the remaining members of the board of directors or at an
annual or special meeting of the shareholders. A director appointed by the
board to fill any vacancy holds office only until the next meeting of
shareholders at which directors are to be elected. The VSCA provides that a
board of directors, by amendment to the corporation's bylaws, may increase or
decrease by 30% or less the number of directors last elected by the
shareholders, or, in the case of a classified board, the number of directors
of all classes immediately following the most recent election of directors by
the shareholders. The Bylaws of United Cities provide that any vacancies on
the Board of Directors may be filled by the affirmative vote of the remaining
directors and such directors elected to fill any vacancy shall hold office
until the next annual election or until his or her successor has been duly
elected.
SPECIAL SHAREHOLDER VOTING REQUIREMENTS
Atmos. The TBCA provides that, with certain limited exceptions, a merger, a
share exchange, a sale of all or substantially all of the assets of a
corporation or an amendment to the corporation's articles of incorporation be
approved by the holders of at least two-thirds of the outstanding shares of
the corporation entitled to vote thereon, unless the articles of incorporation
provide otherwise. The TBCA further provides that, unless otherwise provided
in the articles of incorporation, a corporate dissolution requires the
affirmative vote of the holders of at least two-thirds of the outstanding
shares, whether or not entitled to vote thereon. The TBCA provides that a
greater or lesser vote (although at least a majority) may be specified in the
articles of incorporation. Atmos' Restated Articles of Incorporation do not
currently provide a different voting requirement except for those matters as
to which a higher vote is required under the "fair price" provisions contained
in Article VII of Atmos' Restated Articles of Incorporation discussed below.
However, because Atmos will become incorporated in Virginia as well as Texas
as a result of the Merger, the greater voting requirement specified by
Virginia law, as discussed below, will apply, except as otherwise provided in
Article VII of Atmos' Restated Articles of Incorporation. See "Comparison of
Shareholder Rights--Anti-Takeover Provisions--Atmos."
United Cities. The IBCA provides that, with certain limited exceptions,
unless otherwise provided in the articles of incorporation, a merger, a sale
of all or substantially all of a corporation's assets, a corporate dissolution
or an amendment to the corporation's articles of incorporation requires the
affirmative vote of the holders of at least two-thirds of the outstanding
shares entitled to vote thereon for approval. The VSCA provides that, with
certain limited exceptions, unless otherwise provided in the articles of
incorporation, a merger, a share
85
exchange, a sale of all or substantially all of the corporation's assets, a
corporate dissolution or an amendment to the corporation's articles of
incorporation requires the affirmative vote of the holders of more than two-
thirds of the outstanding shares entitled to vote thereon for approval. In
accordance with the provisions of the IBCA and the VSCA, except for those
matters as to which a higher vote is required under the "fair price"
provisions contained in Article Seven of United Cities' Articles of
Incorporation discussed below, the United Cities' Articles of Incorporation
provide for approval of these matters by a majority of the shares outstanding
and entitled to vote thereon. See "Comparison of Shareholders Rights--Anti-
Takeover Provisions--United Cities."
SHAREHOLDER MEETINGS
Atmos. The TBCA authorizes the president, the board of directors, any other
person authorized in the corporation's articles of incorporation or bylaws and
the holders of at least 10% of the shares entitled to vote at the special
meeting to call a special meeting of shareholders unless otherwise provided in
the articles of incorporation. No alternative provision is made in Atmos'
Restated Articles of Incorporation. Atmos' Bylaws also authorize the Chairman
of the Board to call a special meeting of shareholders.
United Cities. The IBCA provides that special meetings may be called by the
president, the board of directors, the holders of not less than one-fifth of
all the outstanding shares entitled to vote or as provided in the articles of
incorporation or the bylaws. The VSCA provides that special meetings may be
called by the chairman of the board of directors, the president, the board of
directors or as provided in the articles of incorporation or the bylaws. The
United Cities Bylaws provide that a special meeting of shareholders may be
called only by the president, the chairman, the secretary, the board of
directors and the holders of not less than one-fifth of all the outstanding
shares entitled to vote on the matter for which the meeting is called.
ACTION BY WRITTEN CONSENT
Atmos. The TBCA provides that an action may be taken by the shareholders by
means of a written consent signed by the holders of all of the shares entitled
to vote with respect to the action that is the subject of the consent. The
articles of incorporation may provide that the consent may be signed by a
lesser amount, provided that the amount is not less than the minimum number of
shares that would be necessary to take the action at a meeting. If action is
taken by less than all of the shareholders, notice must be given to all of the
non-signing shareholders promptly after approval of the action. Atmos'
Restated Articles of Incorporation do not alter this provision, and its Bylaws
require that all shareholders sign any such consent.
United Cities. The IBCA provides that, unless otherwise provided in the
articles of incorporation, an action may be taken by the shareholders by means
of a written consent signed by the holders of the number of shares that would
be required at a shareholders' meeting to approve such action. The consent of
all of the shareholders is required to authorize the dissolution of the
corporation through a written consent. The VSCA provides that an action may be
taken by the shareholders by means of a written consent signed by all the
shareholders entitled to vote on the action. United Cities' Articles of
Incorporation provide that any action of the shareholders may be taken without
a meeting, if a consent in writing is signed by all of the shareholders
entitled to vote thereon.
LIMITATION OF LIABILITY; INDEMNIFICATION
Atmos. The TBCA permits a corporation to indemnify officers and directors
for actions taken in good faith and in a manner they reasonably believed to be
in, or not opposed to, the best interests of the corporation, and with respect
to any criminal action, if they had no reasonable cause to believe that their
conduct was unlawful. The TBCA also provides that a corporation may advance a
director the expenses of defense (after the director signs a written
affirmation of his good faith belief that he has met the standards for
indemnification and a written undertaking to repay the amount advanced should
it be determined that he has not met that standard) and must reimburse a
successful defendant for his expenses. The purchase and maintenance of
liability insurance for directors and officers is also permitted under the
TBCA. Atmos' Restated Articles of Incorporation provide that
86
an officer or director will be indemnified to the fullest extent permitted by
law and that, upon request, reasonable expenses incurred in defense of an
action will be advanced. Atmos maintains director and officer liability
insurance. See "The Reorganization Agreement and The Merger--Interests of
Certain Persons in the Merger" and "--Indemnification and Insurance for United
Cities' Directors and Officers."
Texas corporation law also allows a corporation, with the approval of its
shareholders, to provide in its articles of incorporation for the elimination
or limitation of the liability of directors for monetary damages to the
corporation and its shareholders under certain circumstances; provided,
however, that a corporation may not eliminate or limit the liability of a
director to the extent the director is found liable for (i) a breach of the
director's duty of loyalty to the corporation or its shareholders, (ii) an act
or omission not in good faith that constitutes a breach of duty of the
director to the corporation or an act or omission that involves intentional
misconduct or a knowing violation of the law, (iii) a transaction from which
the director derived an improper benefit, whether or not the benefit resulted
from an action taken within the scope of the director's office, or (iv) an act
or omission for which the liability of a director is expressly provided by an
applicable statute. Article X of Atmos' Restated Articles of Incorporation
provides for such limitation of liability to the fullest extent permitted by
law.
United Cities. The IBCA permits a corporation to indemnify officers and
directors for actions taken in good faith and in a manner they reasonably
believed to be in, or not opposed to, the best interests of the corporation,
and with respect to any criminal action, which they had no reason to believe
was unlawful. The IBCA provides that a corporation may advance expenses of
defense and must reimburse a successful defendant for his expenses and permits
a corporation to purchase and maintain liability insurance for its directors
and officers. The VSCA provisions for indemnification are substantially
similar. However, the VSCA further provides that a corporation's articles of
incorporation or a shareholder-approved bylaw provision may provide for
further indemnity, including indemnity with respect to a proceeding by or in
the right of the corporation, and make additional provision for advances and
reimbursement of expenses, for all actions, except for willful misconduct or a
knowing violation of criminal law. United Cities' Bylaws provide that an
officer or director will be indemnified in connection with the defense of any
action, suit or proceeding in which he may be named a party by reason of his
being or having been an officer or director or by reason of any action alleged
to have been taken or omitted by him in such capacities. United Cities
maintains director and officer liability insurance.
The IBCA provides that directors and officers, in discharging their duties
to consider the best long-term and short-term interests of the corporation,
may consider the effects of any action (including, without limitation, actions
which may involve or relate to a change or potential change in control of the
corporation) upon the corporation's employees, suppliers and customers and
upon the communities in which offices or other establishments of the
corporation are located. The IBCA provides that a corporation may, in its
articles of incorporation, eliminate or limit the personal liability of a
director to the corporation or its shareholders for monetary damages for a
breach of fiduciary duty as a director. However, the articles of incorporation
may not eliminate or limit the liability of a director for the breach of the
director's duty of loyalty, acts or omissions not in good faith or that
involve willful misconduct or a knowing violation of law and certain other
transactions. With respect to any one transaction or course of conduct, the
VSCA limits the amount of monetary liability which may be assessed against
directors and officers in a suit by or on behalf of a corporation or its
shareholders to the greater of (i) $100,000 or (ii) the amount of cash
compensation received by a director or officer from the corporation during the
immediately preceding 12 months. The corporation may reduce or eliminate such
liability in its articles of incorporation or in a shareholder-approved bylaw.
The foregoing limitation of liability does not apply if the director or
officer engaged in willful misconduct, or a knowing violation of criminal law
or any federal or state securities law including, without limitation, unlawful
insider trading. Article Ten of United Cities' Articles of Incorporation
eliminates the personal liability of the United Cities directors to United
Cities or its shareholders for monetary damages for a breach of fiduciary duty
as a director to the extent permitted under applicable law.
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DISSENTERS' RIGHTS
Atmos. The TBCA allows a shareholder to dissent and demand payment for his
shares from the following corporate actions (i) any plan of merger to which
the corporation is a party if shareholder approval is required by the TBCA,
(ii) any sale, lease, exchange or other disposition of all or substantially
all of the property and assets, with or without good will, of the corporation
requiring the special authorization of the corporation's shareholders under
the TBCA or (iii) any plan of exchange in which the shares of the corporation
are to be acquired. The TBCA does not grant dissenters' rights of appraisal in
a merger to the shareholders of a corporation if the shares of the corporation
are listed on a national securities exchange or held of record by more than
2,000 shareholders, and the holders of shares in such corporation receive as
consideration for their shares, shares of the surviving corporation in the
merger which are listed on a national securities exchange or held of record by
more than 2,000 shareholders and cash in lieu of fractional shares, subject to
certain exceptions.
United Cities. The IBCA allows a shareholder to dissent and demand payment
for his shares in a merger or consolidation and in other situations as well,
including (i) the sale, lease or exchange of all or substantially all of the
assets of the corporation not in the ordinary course of business, (ii) a
change in the articles of incorporation that would impair the shareholder's
preferential rights, rights of redemption or rights to cumulative voting or
(iii) any other corporate action taken pursuant to a shareholder vote if the
articles of incorporation, bylaws or board resolution grant the right of
dissent and appraisal. The shareholder must make written demand for payment
prior to the vote and must not vote for the transaction. If the corporation
and the shareholder cannot agree on the value of the shares, the corporation
may petition an Illinois court having jurisdiction to determine the fair value
of the shares. See "The Reorganization Agreement and the Merger--Dissenters'
Rights" and Exhibit D attached hereto for a more detailed discussion of
dissenters' rights under the IBCA. The VSCA does not grant dissenters' rights
of appraisal in a merger to the shareholders of a corporation if the shares of
the corporation are listed on a national securities exchange or on The Nasdaq
National Market or held of record by more than 2,000 shareholders.
ANTI-TAKEOVER PROVISIONS
Atmos. The TBCA does not contain any specific anti-takeover provisions.
Certain of the provisions of Atmos' Restated Articles of Incorporation and
Bylaws may be deemed to have an "anti-takeover" effect. These provisions
affect shareholder rights and should be given careful attention. They may have
the effect of delaying a tender offer or takeover attempt that a shareholder
might consider in his or her best interest, including those attempts that
might result in a premium over the current market price for the shares held by
shareholders. The following summary description of certain of these provisions
is necessarily general and reference should be made in each case to the
Restated Articles of Incorporation and Bylaws of Atmos.
Fair Price Provisions. Article VII of Atmos' Restated Articles of
Incorporation includes certain "fair price provisions" for shareholders. Under
Article VII, a Business Combination (as defined therein) between Atmos (or a
company controlled by or under common control with Atmos) and a Substantial
Shareholder (as defined therein) would be required to satisfy the condition
that the aggregate consideration per share to be received in the transaction
for each class of Atmos' Voting Stock (as defined therein) be at least equal
to the highest per share price (or equivalent price for any different classes
or series of stock) paid by the Substantial Shareholder in acquiring any of
its holdings of the Atmos Stock. If a proposed Business Combination with a
Substantial Shareholder does not meet such condition, then the transaction
would be required to be approved by the holders of at least 75% of the
outstanding shares of Voting Stock held by shareholders other than the
Substantial Shareholder, unless a majority of the Continuing Directors (as
defined therein) have either (i) expressly approved in advance the acquisition
of the outstanding shares of Voting Stock that caused the Substantial
Shareholder to become a Substantial Shareholder or (ii) approved the Business
Combination either in advance of or subsequent to the Substantial Shareholder
becoming a Substantial Shareholder. A "Business Combination" is defined to
include mergers, consolidations, sales of assets, share exchanges,
recapitalizations and other similar transactions between Atmos (or a company
controlled by or under common control with Atmos) and a Substantial
Shareholder. A "Substantial Shareholder" means any individual, corporation or
other entity which owns or
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controls 10% or more of the Voting Stock of Atmos. A "Continuing Director"
means a director who was a member of the Board of Directors immediately prior
to the time that the Substantial Shareholder involved in the Business
Combination became a Substantial Shareholder.
Amendments to Article VII. Article VII of Atmos' Restated Articles of
-------------------------
Incorporation provides that it may not be amended, altered, changed or
repealed except by the affirmative vote of at least 75% of the votes entitled
to be cast thereon at a meeting of the shareholders duly called for the
consideration of such amendment, alteration, change or repeal. In addition, if
there is a Substantial Shareholder, such action must also be approved by the
affirmative vote of at least 75% of the outstanding shares of Voting Stock
held by the shareholders other than the Substantial Shareholder.
Rights Plan. Atmos has adopted a shareholders' rights plan (as amended to
-----------
date, the "Rights Plan"), declared a dividend of one right (a "Right") for
each outstanding share of Atmos Stock, payable to shareholders of record as of
May 10, 1988, and has issued one Right with each share of Atmos Stock issued
since such date. Each Right entitles the holder thereof, until the earlier of
May 10, 1998 or the redemption of the Rights, to buy one share of Atmos Stock
at an exercise price of $30 per share, subject to adjustment. The Rights are
represented by the Atmos Stock certificates and become exercisable or
transferable apart from the Atmos Stock only if a person or group acquires 20%
or more of the outstanding Atmos Stock or a person or group announces a tender
offer which, if successfully completed, would give that person 30% or more of
the outstanding Atmos Stock, or the Board of Directors determines that a 10%
or more holder has interests that are, in the Board's opinion, adverse to the
interests of other shareholders (an "Adverse Person"). The date upon which the
Rights would separate from the Atmos Stock is defined in the Rights Plan as
the "Distribution Date." Separate certificates for the Rights will be mailed
to holders of record of the Atmos Stock on the Distribution Date.
The Rights change if 30% or more of the Atmos Stock is acquired (except
pursuant to a tender or exchange offer for all outstanding shares on terms
approved by the independent directors of Atmos not associated with the
acquiror), if Atmos is the surviving corporation in a merger with another
entity that owns 20% or more of the Atmos Stock or in the event of certain
self-dealing transactions between Atmos and a 20% holder. Upon the occurrence
of one of these events or in the event any person is determined by the Board
of Directors to be an Adverse Person, holders of the Rights (other than a 20%
shareholder or an Adverse Person) would be entitled to purchase, at the
Right's exercise price, Atmos Stock or, in certain circumstances, other assets
of Atmos having a value of twice such exercise price. In addition, except in
the case of certain "clean up" mergers, if after a 20% shareholder becomes
such Atmos were merged with another entity and Atmos were not the surviving
corporation or if Atmos should sell 50% or more of its assets or earning power
to any other person or entity, each Right would entitle its owner to purchase,
at the Right's exercise price, common stock of the acquiring corporation
having a value of twice such exercise price.
The Board of Directors of Atmos (with, in certain circumstances, the
concurrence of those directors not associated with a 20% or more holder) may
generally redeem the Rights any time in whole, but not in part, at a price of
$.05 per Right until ten days after an announcement that an acquisition of 20%
or more of the outstanding Atmos Stock has occurred. The Board (with, in
certain circumstances, the concurrence of those directors not associated with
a 20% or more holder) may also extend the ten-day period during which Atmos
may redeem the Rights. Atmos may not redeem the Rights after the Board has
declared a person to be an Adverse Person.
The Rights expire on May 10, 1998 (unless sooner redeemed). At no time will
the Rights have any voting rights. The Rights Agent is The First National Bank
of Boston. The exercise price payable and the number of shares of Atmos Stock
or other securities or property issuable upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution.
One Right was distributed to shareholders of Atmos for each share of Atmos
Stock owned of record by them on May 10, 1988. Until the Distribution Date,
Atmos will issue one Right with each share of Atmos Stock that becomes
outstanding (including the shares of Atmos Stock to be issued pursuant to the
Reorganization
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Agreement and thereafter delivered to the shareholders of United Cities in
connection with the Merger) so that all shares of Atmos Stock will have
attached Rights. After the Distribution Date, Atmos may issue Rights when it
issues Atmos Stock if the Board deems such issuance to be necessary or
appropriate.
The Rights Plan has certain anti-takeover effects. The Rights may cause
substantial dilution to a person or entity that attempts to acquire Atmos on
terms not approved by the Board of Directors.
Until the Distribution Date, the Rights should not be taxable to the
recipient. A shareholder may recognize taxable income if the Rights become
exercisable and readily tradeable apart from the Atmos Stock.
United Cities. Certain of the provisions of the IBCA, the VSCA and United
Cities' Articles of Incorporation and Bylaws may be deemed to have an "anti-
takeover" effect. These provisions affect shareholder rights and should be
given careful attention. They may have the effect of delaying a tender offer
or takeover attempt that a shareholder might consider in his or her best
interest, including those attempts that might result in a premium over the
current market price for the shares held by shareholders. The following
summary description of certain of these provisions is necessarily general, and
reference should be made in each case to the provisions of the IBCA, the VSCA
and Articles of Incorporation and Bylaws of United Cities.
IBCA Fair Price Provision. The IBCA includes a "Fair Price" statute which
-------------------------
applies to certain public companies, including United Cities, as well as
corporations which specifically adopt the provision in their articles of
incorporation. If applicable, the statute requires the approval of both (i)
80% or more of the combined voting power of the outstanding shares of the
corporation's stock voting together as one class and (ii) a majority of the
combined voting power of the outstanding shares of the corporation's stock
held by disinterested shareholders for any of the following actions: (a) to
make changes to any provision in the articles of incorporation specifically
adopting the fair price provision; (b) to effectuate certain transactions with
any "Interested Shareholder" (as defined hereinafter), including certain
mergers, consolidations, share exchanges and sales, leases, exchanges,
mortgages or transfers of assets; (c) to issue or transfer any securities of
the corporation to any Interested Shareholder; (d) to adopt certain plans or
proposals for the liquidation or dissolution of the corporation; or (e) to
reclassify securities or undertake certain other transactions which have the
effect of increasing the proportionate share of the corporation's stock owned
by Interested Shareholders or their affiliates or associates. Interested
Shareholders are defined as, among other things, the beneficial owners of 10%
or more of the combined voting power of the outstanding shares of the
corporation. If two-thirds of the disinterested directors of the corporation
approve an action listed in (a) through (e) above or if the price and
procedure requirements and certain other requirements of the IBCA are met, the
80% vote described above is not required and the regular voting requirements
of the IBCA apply instead. The price and procedure requirements provide that
the consideration to be received by all holders of common shares shall be at
least equal to the higher of the following (i) the highest per share price
paid by the Interested Shareholder or any affiliate or associate of the
Interested Shareholder (a) within the two-year period prior to the first
public announcement of the proposal of the business combination or (b) in the
transaction in which it became an Interested Shareholder, whichever is higher,
or (ii) the fair market value per share on the first trading date after the
date of the first public announcement of the Interested Shareholder becoming
an Interested Shareholder or after the date of the first public announcement
of the proposed business combination. In addition, all outstanding shares
other than common shares must meet a test based on certain similar criteria.
IBCA Business Combination Provision. The IBCA also contains a statute which,
------------------------------------
subject to certain exceptions, prohibits business combinations with Interested
Shareholders for a period of three years following the date the person or
entity became an Interested Shareholder, unless (i) the business combination
or the transaction resulting in the shareholder becoming an Interested
Shareholder was approved by the board prior to such date, (ii) the Interested
Shareholder owns at least 85% of certain outstanding voting shares or (iii) on
or subsequent to such date, the business combination is approved by the board
of directors and authorized by the affirmative vote of at least two-thirds of
the outstanding shares not owned by the Interested Shareholder. The
restrictions do not apply if the articles of incorporation or bylaws expressly
provide that the corporation not be governed by the provision. The United
Cities Articles of Incorporation and Bylaws do not expressly prohibit
90
application of the statute. The statute applies only to a corporation which
has (i) its principal place of business or principal executive office located
in Illinois or owns or controls assets located within Illinois that have a
fair market value of at least $1,000,000 and (ii) has more than 10% of its
shareholders resident in Illinois, has more than 10% of its shares owned by
Illinois residents or has 2,000 shareholders resident in Illinois. The statute
does not apply to United Cities.
VSCA Control Share Acquisition Statute. The VSCA includes a control share
--------------------------------------
acquisition statute which applies to all public companies, including United
Cities, unless a company's articles of incorporation or bylaws specifically
state that the statute does not apply to acquisitions of the corporation's
stock. United Cities' Articles of Incorporation and Bylaws do not specifically
reject the application of the control share acquisition statute. The statute
provides that shares of an issuing public company acquired in a "control share
acquisition" (as defined hereinafter) have no voting rights unless such voting
rights are specifically granted by resolution adopted by the shareholders of
the issuing public company. A "control share acquisition" is defined as the
direct or indirect acquisition by any person of beneficial ownership of shares
of an issuing public company that would have voting rights and, when added to
all other shares of such issuing public company which then have voting rights
and are beneficially owned by such person, would cause such person to become
entitled, immediately upon acquisition of such shares, to vote or direct the
vote of, shares having voting power within any of the following ranges of the
votes entitled to be cast in an election of directors: (i) one-fifth or more
but less than one-third of such votes; (ii) one-third or more but less than a
majority of such votes; or (iii) a majority or more of such votes. A
resolution approving the granting of voting rights under the control share
acquisition statute must be approved by a majority of all the votes which
could be cast in a vote on the election of directors by all outstanding shares
other than interested shares. If the shareholders do not approve the
resolution, the shares acquired in the control share acquisition will have no
voting rights, unless and until such shares are subsequently transferred in
circumstances where the transferor no longer has beneficial ownership of the
shares and the transferee is not engaged in a control share acquisition. If an
acquiring person satisfies certain conditions and delivers a control share
acquisition statement to the issuing public company, the issuing company must
call a special meeting of the shareholders for the purpose of considering the
voting rights to be granted the shares. If redemption is specifically
authorized in a company's articles of incorporation or bylaws, the statute
provides the issuing public company with the ability to redeem the shares if
the control share acquisition statement is not delivered or the shareholders
deny voting rights. United Cities' Articles of Incorporation and Bylaws do not
authorize such redemption. The control share acquisition statute also gives
shareholders certain dissenter's rights, unless otherwise prohibited by the
corporation's articles of incorporation or bylaws, in the event shares
acquired in a control share acquisition are granted voting rights and the
beneficial owner owns enough shares to cast a majority of the votes that could
be cast in the election of directors. Such dissenters' rights are not
prohibited by United Cities' Articles of Incorporation or Bylaws.
VSCA Fair Price Provision. The VSCA also contains an anti-takeover provision
-------------------------
which limits the ability of an "Interested Shareholder" (defined as the
beneficial owner of more than 10% of a corporation's voting stock) to engage
in any "affiliated transaction" (which includes, among other things, a merger
or share exchange) within three years of the date the Interested Shareholder
became such without the approval of both a majority of disinterested directors
and the affirmative vote of the holders of two-thirds of the voting shares
other than shares beneficially owned by the Interested Shareholder. After the
three-year period has lapsed, an affiliated transaction may be effected
between an Interested Shareholder and the corporation with the approval of the
affirmative vote of the holders of more than two-thirds of the voting shares
of the corporation other than shares beneficially owned by the Interested
Shareholder. However, the super-majority voting provisions do not apply if the
affiliated transaction has (i) been approved by a majority of the
disinterested directors or (ii) the affiliated transaction meets certain "fair
price" provisions and conditions. The fair price provisions generally require
that the consideration to be received by holders of each class or series of
voting shares in the affiliated transaction must be at least equal to the
highest of (i) the highest per share price paid by the Interested Shareholder
either within the preceding two years or in the transaction in which the
Interested Shareholder became an Interested Shareholder, plus interest, (ii)
the fair market value on the date of either the date that the public
announcement of the affiliated transaction is made or on the date on which the
Interested Shareholder became an Interested
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Shareholder (multiplied by a ratio under certain circumstances), plus
interest, or (iii) the highest preferential amount per share to which the
holders of each class or series would be entitled in the event of a voluntary
or involuntary dissolution. This VSCA statute does not apply to any affiliated
transaction with an Interested Shareholder who became such with the approval
of a majority of disinterested directors.
Article Seven of United Cities' Articles of Incorporation is similar to the
"Fair Price" provision of the IBCA and provides that, in addition to any
affirmative vote required by law or the Articles of Incorporation, certain
business combinations with any Interested Shareholder (as defined below)
including any merger, consolidation, sale, lease, mortgage, pledge, issuance
or transfer of securities or adoption of a plan of liquidation or dissolution,
will require the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of capital stock of United Cities
entitled to vote generally in the election of directors voting together as a
single class. In addition, Article Seven also provides that the 80% voting
requirement is not required if the business combination is either approved by
all of the disinterested directors or certain fair price and procedure
requirements similar to those required by the "Fair Price" provisions of the
IBCA are met. For purposes of Article Seven of United Cities' Articles of
Incorporation, a shareholder is deemed to be an Interested Shareholder if it
is the beneficial owner, directly or indirectly, of more than 10% of the
voting power of the outstanding voting stock. A majority of the board of
directors has the power and duty to determine for purposes of Article Seven,
on the basis of information known to them after reasonable inquiry, whether a
person is an Interested Shareholder. The board of directors will also have the
power to interpret all of the terms and provisions of Article Seven. Article
Seven further provides that any amendment to that section be approved by the
affirmative vote of the holders of at least 80% of the outstanding shares of
United Cities entitled to vote.
Shareholders should recognize that the foregoing provisions might discourage
or render more difficult a merger, tender offer, proxy context or change in
control of a company. To the extent that these provisions enable the board of
directors to resist or discourage a takeover or change in control, they also
may make it more difficult to remove any incumbent board of directors.
LEGAL MATTERS
The validity of the shares of Atmos Stock to be issued and delivered to
United Cities' shareholders in connection with the Merger and certain tax
consequences of the Merger will be passed upon for Atmos by the law firm of
Locke Purnell Rain Harrell (A Professional Corporation), Dallas, Texas. Dan
Busbee, a director of Atmos, is a shareholder of Locke Purnell Rain Harrell (A
Professional Corporation). As of October 9, 1996, Mr. Busbee beneficially
owned 3,071 shares of Atmos Stock. Certain legal matters, including tax
consequences of the Merger, will be passed upon for United Cities by the law
firm of Chapman and Cutler, Chicago, Illinois.
EXPERTS
The consolidated financial statements of Atmos appearing in Atmos' Annual
Report (Form 10-K) for the year ended September 30, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon
such report given upon the authority of such firm as experts in accounting and
auditing.
With respect to the unaudited condensed consolidated interim financial
information for the three-month periods ended December 31, 1995 and 1994,
March 31, 1996 and 1995 and June 30, 1996 and 1995, incorporated by reference
in this Joint Proxy Statement/Prospectus, Ernst & Young LLP have reported that
they have applied limited procedures in accordance with professional standards
for a review of such information. However, their separate reports, included in
Atmos' Quarterly Reports on Form 10-Q for the quarters ended December 31,
1995, March 31, 1996 and June 30, 1996, and incorporated herein by reference,
state that they did not audit and they
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do not express an opinion on that interim financial information. Accordingly,
the degree of reliance on their reports on such information should be
restricted considering the limited nature of the review procedures applied.
The independent auditors are not subject to the liability provisions of
Section 11 of the Securities Act for their reports on the unaudited interim
financial information because that report is not a "report" or a "part" of the
Registration Statement prepared or certified by the auditors within the
meaning of Sections 7 and 11 of the Securities Act.
The financial statements of United Cities and subsidiaries incorporated by
reference in this Joint Proxy Statement/Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report
with respect thereto, and are included herein in reliance upon the authority
of said firm as experts in giving said reports. Reference is made to said
report, which includes an explanatory paragraph with respect to the change in
the method of accounting for post-retirement benefits other than pensions and
income taxes as discussed in the notes to the financial statements.
Representatives of Ernst & Young LLP are expected to be present at the Atmos
Shareholders Meeting and available to respond to appropriate questions.
Representatives of Arthur Andersen LLP are expected to be present at the
United Cities Shareholders Meeting and available to respond to appropriate
questions.
SHAREHOLDER PROPOSALS
As of the date of this Joint Proxy Statement/Prospectus, Atmos management
and United Cities management know of no other matters that may properly be, or
which are likely to be, brought before the Atmos Shareholders Meeting or the
United Cities Shareholders Meeting, respectively. However, if any other
matters are properly brought before such Shareholders Meetings, the persons
named in the enclosed proxy or their substitutes will vote the proxies in
accordance with their best judgment.
In order to be considered for inclusion in the proxy statement for the next
annual meeting, if any, of shareholders of United Cities, any shareholder
proposal intended to be presented at the meeting must be received by United
Cities on or before December 1, 1996.
In order to be considered for inclusion in the proxy statement for the next
annual meeting of shareholders of Atmos scheduled to be held on February 12,
1997, any shareholder proposal intended to be presented at the meeting must
have been received by Atmos on or before August 28, 1996.
93
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into this 19th day of July, 1996, by and between ATMOS ENERGY
CORPORATION, a Texas corporation ("Atmos"), and UNITED CITIES GAS COMPANY, an
Illinois and Virginia corporation ("United Cities").
In consideration of the mutual agreements herein contained, Atmos and United
Cities agree to carry out a plan of reorganization providing for a statutory
merger under the applicable laws of Texas, Illinois and Virginia whereby:
A. United Cities will be merged with and into Atmos, with Atmos as the
surviving corporation incorporated and existing under the laws of the
States of Texas and Virginia;
B. the shareholders of United Cities, upon exchange of their shares of
common stock of United Cities, will receive shares of common stock of
Atmos; and
C. all of the assets, properties, and business of United Cities, together
with all of the obligations and liabilities of United Cities, shall
thereupon be transferred to and assumed by Atmos;
all subject to the following terms and conditions:
ARTICLE 1
Representations and Warranties of United Cities
United Cities hereby represents and warrants to Atmos that the statements
set forth in this Article 1 are true, correct and complete as of the date of
this Agreement and will be true, correct and complete as of the Closing Date
as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article 1, except as otherwise set
forth in the United Cities Disclosure Schedule attached hereto as Exhibit A;
provided, that each matter set forth in the United Cities Disclosure Schedule
shall be deemed to be an exception only to those representations and
warranties that are specifically referenced by Section number in the United
Cities Disclosure Schedule in connection with such matter.
Section 1.1 Organization and Qualification.
(a) United Cities is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdictions of its incorporation and has
all requisite corporate power and authority and possesses all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals, and orders (collectively, "Governmental Authorizations") necessary
to own, lease, and operate its properties and assets and to carry on its
business as it is now being conducted except where the failure to have any of
such Governmental Authorizations would not have a material adverse effect on
the business, operations, properties, condition (financial or otherwise),
assets or liabilities, of the United Cities Entities, taken as a whole. United
Cities is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, in each jurisdiction in which the character of the
property owned, leased, or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except in
such jurisdictions (if any) where the failure to be duly qualified or licensed
does not and would not have a material adverse effect on the business,
operations, properties, condition (financial or otherwise), assets or
liabilities, of the United Cities Entities, taken as a whole.
(b) United Cities has not been a subsidiary or division of another
corporation or entity at any time during the two-year period prior to the date
of this Agreement.
(c) United Cities has heretofore delivered to Atmos true, correct, and
complete copies of United Cities' Articles of Incorporation and Bylaws,
including all amendments thereto.
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Section 1.2 Subsidiaries.
(a) United Cities does not directly or indirectly own any equity or similar
interest in any corporation, partnership, joint venture, or other business
association or entity, except as set forth in Section 1.2(b), other than (i)
United Cities Energy Corporation, a Delaware corporation that is wholly owned
by United Cities, (ii) United Cities Gas Storage Company, a Delaware
corporation that is wholly owned by United Cities, (iii) United Cities Propane
Gas of Tennessee, Inc., a Tennessee corporation that is wholly owned by United
Cities Energy Corporation, and (iv) United Cities Leasing, Inc., a Georgia
corporation that is wholly owned by United Cities Energy Corporation
(collectively, the "United Cities Subsidiaries"). (United Cities and the
United Cities Subsidiaries are referred to collectively in this Agreement as
the "United Cities Entities.") United Cities is the sole record and beneficial
owner of, and has good and valid title to, all of the outstanding shares of
capital stock of United Cities Energy Corporation and United Cities Gas
Storage Company, and United Cities Energy Corporation is the sole record and
beneficial owner of, and has good and valid title to, all of the outstanding
capital stock of United Cities Propane Gas of Tennessee, Inc. and United
Cities Leasing, Inc., in each case free and clear of all liens, mortgages,
pledges, security interests or other encumbrances. All of the outstanding
capital stock of each of the United Cities Subsidiaries has been duly
authorized and validly issued, is fully paid and nonassessable.
(b) United Cities Energy Corporation owns a 45% equity interest in Woodward
Marketing, L.L.C., free and clear of all liens, mortgages, pledges, security
interests and other encumbrances. The equity ownership interest held by United
Cities Energy Corporation in Woodward Marketing, L.L.C. has been duly
authorized and validly issued, is fully paid and nonassessable.
(c) Each of the United Cities Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of
its incorporation and has all requisite corporate power and authority and
possesses all Governmental Authorizations necessary to own, lease, and operate
its properties and assets and to carry on its business as it is now being
conducted except where the failure to have any of such Governmental
Authorizations would not have a material adverse effect on the business,
operations, properties, condition (financial or otherwise), assets or
liabilities, of the United Cities Entities, taken as a whole. Each of the
United Cities Subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction in
which the character of the property owned, leased, or operated by it or the
nature of the business conducted by it makes such qualification or licensing
necessary, except in such jurisdictions (if any) where the failure to be duly
qualified or licensed does not and would not have a material adverse effect on
the business, operations, properties, condition (financial or otherwise),
assets or liabilities of the United Cities Entities, taken as a whole.
(d) Woodward Marketing, L.L.C. is a limited liability company duly
organized, validly existing and in good standing under the laws of the State
of Delaware and has all requisite limited liability company power and
authority to own, lease, and operate its properties and assets and to carry on
its business as it is now being conducted and is duly qualified as foreign
limited liability company in the State of Texas.
(e) United Cities has heretofore delivered to Atmos true, correct and
complete copies of the Articles of Incorporation and Bylaws, including all
amendments thereto, of the United Cities Subsidiaries, and of the charter
documents and Limited Liability Company Agreement of Woodward Marketing,
L.L.C.
Section 1.3 Capitalization. The entire authorized capital stock of United
Cities consists of 40,000,000 shares of common stock, no par value ("United
Cities Stock"), and 200,000 shares of preferred stock, no par value
("Preferred Stock"). As of June 30, 1996, (a) 13,102,913 shares of United
Cities Stock were issued and outstanding, all of which were duly authorized,
validly issued, fully paid, and nonassessable and free of preemptive rights,
(b) no shares of Preferred Stock were issued and outstanding, and (c) no
shares of United Cities Stock or Preferred Stock were held in the treasury of
United Cities. Except as set forth on the United Cities SEC Reports, there are
no options, warrants, or other rights, agreements, arrangements, or
commitments of any character relating to the issued or unissued capital stock
of the United Cities Entities or obligating the
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United Cities Entities to issue or sell any shares of capital stock of, or any
securities convertible into or evidencing the right to purchase any shares of
capital stock of or other equity interests in, the United Cities Entities.
There are no obligations, contingent or otherwise, of the United Cities
Entities to repurchase, redeem, or otherwise acquire any shares of capital
stock or other equity interests in any of the United Cities Entities.
Section 1.4 Authority Relative to this Agreement. United Cities has all
requisite corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby, subject to the approval of United Cities shareholders as
contemplated in this Agreement and the terms and conditions of this Agreement.
The execution and delivery of this Agreement by United Cities and the
consummation by United Cities of the transactions contemplated hereby have
been duly and validly authorized by United Cities' Board of Directors and,
except for the approval of the shareholders of United Cities, no other
corporate proceedings on the part of United Cities are necessary to authorize
this Agreement or to consummate the transactions so contemplated. This
Agreement has been duly and validly executed and delivered by United Cities
and constitutes the legal, valid, and binding obligation of United Cities and
is enforceable against United Cities in accordance with its terms, subject to
bankruptcy, insolvency, moratorium and other laws generally affecting
creditors' rights.
Section 1.5 No Conflict; Required Filings and Consents. The execution,
delivery, and performance of this Agreement by United Cities and the
consummation by United Cities of the transactions contemplated hereby in
accordance with the terms and conditions hereof, including the Merger, do not
and will not:
(a) conflict with the Articles of Incorporation or Bylaws of the United
Cities Entities or the Certificate of Formation or Limited Liability
Company Agreement of Woodward Marketing, L.L.C.;
(b) conflict with or violate any law, rule, regulation, order, judgment,
or decree applicable to any of the United Cities Entities or by which any
of them or any of their respective properties is bound or affected;
(c) except for those consents and waivers required to be obtained
pursuant to Section 3.5, require from any person other than a governmental
or regulatory authority any consent, approval, or notice under, or violate,
result in any breach of, constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration, or cancellation of, or
result in the creation of a lien or encumbrance on any of the property or
assets of any of the United Cities Entities pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, or other
instrument or obligation to which any of the United Cities Entities is a
party or by which any of the United Cities Entities or any of their
respective properties is bound or affected; or
(d) require any consent, approval, authorization, or permit of, or filing
with or notification to, any governmental or regulatory authority except
(i) the applicable requirements of federal and state securities laws, (ii)
the filing requirements under the Hart-Scott-Rodino Act, (iii) the filing
and recordation of appropriate merger or other documents as required by the
Texas Business Corporation Act, the Illinois Business Corporation Act, and
the Virginia Stock Corporation Act, (iv) approvals of the applicable state
public utility commissions in the states in which United Cities or Atmos is
doing business, and (v) approval of the Federal Energy Regulatory
Commission.
Section 1.6 Compliance. None of the United Cities Entities is in breach,
default, or violation of, and no event has occurred or is occurring that with
notice or lapse of time or both would become a breach, default, or violation
of, (a) any of the United Cities Entities' Articles of Incorporation or Bylaws
or the Certificate of Formation or Limited Liability Company Agreement of
Woodward Marketing, L.L.C., (b) any law, rule, regulation, order, judgment, or
decree applicable to any of the United Cities Entities or by which any of them
or any of their respective properties is bound or affected, or (c) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, or other instrument or obligation to which any of the United Cities
Entities is a party or by which any of them or any of their respective
properties is bound or affected, nor have any of them received and not finally
resolved any complaint, citation, or notice of a breach, default, or violation
of any of the foregoing nor are any threatened.
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Section 1.7 Environmental Matters.
(a) No Hazardous Materials are now located in, on, at, upon, or under the
Subject Property currently owned or operated by any of the United Cities
Entities or have migrated or emanated, or threaten to migrate or emanate, to
adjacent property in a quantity or manner that is required to be reported
under any Environmental Requirements, or that is in violation of any
Environmental Requirements, or for which any of the United Cities Entities
will be liable under any Environmental Requirements for the cost of
remediation or other response if such costs are incurred by an Environmental
Agency; and no Hazardous Materials have been located in, on, at, upon, or
under the Subject Property, or migrated or emanated from the Subject Property
at any time prior to or during the Use of the Subject Property by any of the
United Cities Entities in a quantity or manner that is required to be reported
under any Environmental Requirements, or that is in violation of any
Environmental Requirements, or for which any of the United Cities Entities
will be liable under any Environmental Requirements for the cost of
remediation or other response if such costs are incurred by an Environmental
Agency.
(b) No Hazardous Materials have been generated, stored, transported,
disposed of on-site, or sent off-site from, in, on, at, or upon the Subject
Property at any time during the Use of the Subject Property by any of the
United Cities Entities (or prior to the Use of the Subject Property by any of
the United Cities Entities) in a quantity or manner that is required to be
reported under any Environmental Requirements, or that is in violation of any
Environmental Requirements, or for which any of the United Cities Entities
will be liable under any Environmental Requirements for the cost of
remediation or other response if such costs are incurred by an Environmental
Agency.
(c) There are no off-site locations where Hazardous Materials generated or
transported from the Subject Property have been stored, treated, recycled, or
disposed of by any of the United Cities Entities or their agents, employees,
or representatives in a quantity or manner that is required to be reported
under any Environmental Requirements, or that is in violation of any
Environmental Requirements, or for which any of the United Cities Entities
will be liable under any Environmental Requirements for the cost of
remediation or other response if such costs are incurred by an Environmental
Agency.
(d) Each of the United Cities Entities has all permits, licenses, or
authorizations from any Environmental Agency that it is required to have by
any Environmental Requirement in order to operate any aspect of the Subject
Property currently operated by it or the business currently conducted at the
Subject Property; the Use of the Subject Property currently Used by each of
the United Cities Entities, including but not limited to any and all
Environmental Activity, and all Environmental Conditions, is and has been in
compliance with all Environmental Requirements during the Use of the Subject
Property by each of the United Cities Entities and at all times prior to its
Use by each of the United Cities Entities.
(e) No Environmental Costs have been suffered by any of the United Cities
Entities or by any third party prior to or during the Use of the Subject
Property by any of the United Cities Entities, and United Cities is not aware
of, and has not received notice of, any past or present events, conditions,
circumstances, activities, practices, incidents, actions, or plans that may
result in Environmental Costs or that may give rise to any common law or legal
liability based on or related to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling or the emission,
discharge, release, or threatened release into the environment, of any
pollutant, contaminant, chemical, or industrial toxic or hazardous substance
or waste or Hazardous Materials.
(f) None of the United Cities Entities has Used, in the past, any facilities
that could reasonably be expected to subject any of the United Cities Entities
to Environmental Costs.
(g) All of the manufactured gas plants now or formerly Used by any of the
United Cities Entities and all locations where waste from these plants was
disposed of are set forth in the United Cities SEC Reports.
(h) All of the underground storage tanks located on the Subject Property are
set forth in the United Cities SEC Reports.
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Section 1.8 Contracts. United Cities has made available to Atmos all
material contracts, loan agreements, indentures, commitments, and other
agreements or documents to which any of the United Cities Entities is a party
or by which any of the United Cities Entities or any of their respective
properties is bound or affected. All such contracts and instruments are in
full force and effect and no party thereto is in default thereunder and no
default is threatened thereunder.
Section 1.9 SEC Filings; Financial Statements; Absence of Undisclosed
Liabilities.
(a) United Cities has filed all forms, reports, and documents required to be
filed with the SEC since January 1, 1993, and has heretofore delivered or made
available to Atmos, in the form filed with the SEC, (i) its Annual Reports on
Form 10-K for the fiscal years ended December 31, 1993 through 1995, (ii) its
Quarterly Report on Form 10-Q for the period ended March 31, 1996, (iii) all
proxy statements relating to United Cities' meetings of shareholders (whether
annual or special) held since January 1, 1993, (iv) all Forms 8-K filed by
United Cities with the SEC since January 1, 1993, (v) all other reports or
registration statements filed by United Cities with the SEC since January 1,
1993, and (vi) all amendments and supplements to all such reports,
registration statements and proxy statements filed by United Cities with the
SEC since January 1, 1993 (collectively, the "United Cities SEC Reports"). As
of their respective dates, the United Cities SEC Reports were prepared in
substantial compliance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and did not at the time they were filed
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the United Cities Entities other than United
Cities is subject to the reporting requirements of the Exchange Act.
(b) United Cities has heretofore delivered or made available to Atmos its
audited consolidated financial statements for its fiscal years ended December
31, 1993 through 1995 and its unaudited consolidated financial statements for
the period ended March 31, 1996. All such financial statements of United
Cities that have been delivered or made available to Atmos have been prepared
in accordance with generally accepted accounting principles applied (except as
otherwise noted therein) on a consistent basis throughout the periods covered
thereby (subject, in the case of any such financial statements that are
unaudited, to year-end adjustments in such amount and of such type as are or
will be consistent with adjustments made in prior fiscal years). The
consolidated financial statements (together with the related notes thereto)
fairly present in all material respects the consolidated financial condition
and consolidated results of operation of United Cities as of and for the
respective dates indicated.
(c) None of the United Cities Entities has any liabilities or obligations
(whether accrued, absolute, contingent, known or unknown, or otherwise) that
(i) are not accrued or reserved against in the consolidated balance sheet of
United Cities as at March 31, 1996 or reflected in the notes thereto in
accordance with generally accepted accounting principles consistently applied
or (ii) were incurred after the date of such balance sheet outside of the
ordinary course of business of any of the United Cities Entities.
Section 1.10 Books and Records. United Cities has made available to Atmos,
and will continue to make available to Atmos, all of the United Cities
Entities' books, records, and certificates. All of such books, records, and
certificates are true, complete, and correct.
Section 1.11 Conduct of Business in Ordinary Course; Absence of Certain
Changes or Events. Since March 31, 1996, each of the United Cities Entities
has conducted its business only in the ordinary course; and, since such date,
there has not been any adverse change in the business, operations, properties,
condition (financial or otherwise), assets or liabilities of any of the United
Cities Entities, taken as a whole, or any condition, event, or development
that will result in an adverse change in the business, operations, properties,
condition (financial or otherwise), assets or liabilities of the United Cities
Entities, taken as a whole.
Section 1.12 Litigation. There are no material claims, actions, suits,
investigations, or proceedings pending or threatened against or affecting any
of the United Cities Entities or any of their respective properties
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or rights at law or in equity before or by any court, arbitrator, or
administrative, governmental, or regulatory authority or body. None of the
United Cities Entities nor any of their respective properties is subject to
any order, writ, judgment, injunction, decree, determination, or award.
Section 1.13 Title to, and Condition of, Assets. Each of the United Cities
Entities has good and marketable title to, or a valid leasehold interest in,
all of its assets and properties, real and personal, including the properties,
assets, and leasehold interests reflected in the United Cities balance sheet
dated March 31, 1996 referred to in Section 1.9 of this Agreement (except for
any properties or assets disposed of in the ordinary course of business since
the date of such balance sheet), necessary or appropriate for the operation of
its business, free and clear of all liens, mortgages, pledges, security
interests, or other encumbrances (except for matters set forth in the notes to
such balance sheet and the notes to the December 31, 1995 balance sheet). All
of the United Cities Entities' properties and assets are in good condition and
repair (ordinary wear and tear excepted) and are adequate and sufficient for
the conduct of the United Cities Entities' businesses.
Section 1.14 Intellectual Property. The United Cities Entities own or
possess, or can acquire on reasonable terms, the patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and other
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the business now operated by them, and none of the United
Cities Entities has received any notice of infringement of or conflict with
asserted rights of others with respect to any of the foregoing which, singly
or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would result in any material adverse change in the business,
operations, properties, condition (financial or otherwise), assets or
liabilities of the United Cities Entities, taken as a whole.
Section 1.15 Taxes. All Tax Returns of or relating to any Taxes that are
required to be filed with respect to United Cities and the United Cities
Subsidiaries or any of their income, properties, or operations have been duly
filed on a timely basis and were true, complete, and correct. All Taxes
attributable to United Cities and the United Cities Subsidiaries or any of
their income, properties, or operations that are or were due and payable have
been timely paid, and United Cities and the United Cities Subsidiaries have no
liability for any Taxes other than with respect to their current taxable year
for which adequate provisions have been made and are reflected in United
Cities' consolidated financial statements in accordance with generally
accepted accounting principles.
Section 1.16 Employee Benefit Plans.
(a) United Cities has previously delivered or made available to Atmos true,
correct and complete copies of (i) each Plan that is a "multiemployer plan,"
as defined in ERISA Section 4001, (ii) each other employee benefit plan as
defined in Section 3(3) of ERISA with respect to which a United Cities Entity
or any Group Member is a "Party in Interest," as defined in Section 3(14) of
ERISA, and (iii) each other Employee Benefit Arrangement.
(b) Each United Cities Entity, each Group Member, and each Plan is now, and
has been from its inception, in compliance with the provisions of ERISA and
the Code insofar as ERISA and the Code are applicable to such Plans. Each Plan
intended to be qualified under Section 401(a) of the Code has been determined
to be so qualified by the IRS and nothing has occurred since the date of the
last such determination which resulted or is likely to result in the
revocation of such determination. All required reports and descriptions of
each Plan have been timely filed and distributed as required by ERISA.
(c) There has not occurred with respect to any Plan any non-exempt
"Prohibited Transaction," as defined in either Section 406 of ERISA or Section
4975 of the Code.
(d) There has not occurred with respect to any Plan any "Reportable Event,"
as defined in Section 4043 of ERISA. No Plan has applied for or obtained a
waiver from the IRS of any minimum funding requirement under Section 412 of
the Code.
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(e) (i) No Plan has been terminated, and no withdrawal from any
"multiemployer plan," as defined in Section 4001 of ERISA, has occurred since
the inception of any Plan under circumstances that have given rise to, or
would give rise to, any actual or potential liability to the PBGC or any other
person (excluding liabilities to participants (other than any liability for
unpaid benefits) for benefits payable in the normal course of events pursuant
to any such termination or withdrawal), (ii) no event or condition exists
which presents a risk of termination of any Plan by the PBGC, and (iii) there
is no actual or potential liability to the PBGC or any other person expected
by the United Cities Entities or any Group Member to be incurred with respect
to any Plan, including, but not limited to, any liability for premium
payments, for any accumulated funding deficiency as defined in Section 302 of
ERISA or for any minimum funding contribution under Section 302 of ERISA.
(f) The current value (as defined in Section 4062(b)(1)(A) of ERISA) of all
accrued benefits (as defined in Section 3 of ERISA) under each Plan which is a
plan subject to the provisions of Title IV of ERISA does not, as of January 1,
1996, exceed the current value of the assets of such Plan allocable to such
accrued benefits, by an amount which is more than $1,500,000.
(g) No lien imposed under Section 412(n) of the Code exists in favor of any
Plan upon any property belonging to a Group Member.
(h) United Cities has previously delivered or made available to Atmos true,
correct and complete copies of the annual reports and actuarial reports for
the preceding two plan years (1993 and 1994) filed with respect to each such
Plan and Employee Benefit Arrangement, summary plan descriptions and other
communications to employees relating to each such Plan and Employee Benefit
Arrangement, any related trust or third-party funding vehicle documents and
related financial statements, and all letters from the IRS, if any, confirming
the tax-exempt status or qualification under Section 401(a) of the Code of any
Plan. There are no Plans or Employee Benefit Arrangements other than those
previously delivered and made available to Atmos.
(i) Neither (i) the United Cities Entities, or any director, officer,
employee, or agent of a United Cities Entity, has, with respect to any Plan,
nor (ii) any Plan or trust created thereunder or trustee or administrator
thereof has, engaged in any conduct that would result in any penalties under
Section 502(i) of ERISA or any liability under Section 409 of ERISA for breach
of fiduciary duty. No civil or criminal action or claim (other than
uncontested claims for benefits) is pending or threatened with respect to any
Plan.
(j) None of the United Cities Entities, any Group Member, or any director,
officer, or employee of any of the foregoing have taken any elective action
that would commit a United Cities Entity to continue any Plan or Employee
Benefit Arrangement or any benefit thereunder for any present or former
employee of a United Cities Entity or that would prevent such United Cities
Entity from changing or terminating any such benefit or plan; provided, that
this representation shall not be construed to apply with respect to any
express provision of a document which provides for such effect without further
action or election by such persons.
(k) No United Cities Entity now has in effect, or previously had in effect,
any welfare benefit plan, commitment, understanding, or arrangement providing
for medical or death benefits (whether insured or uninsured) with respect to
current or former employees beyond their date of retirement or other
termination of service (other than coverage mandated by Section 4980B of the
Code and Section 601 of ERISA, the cost of which is fully paid by the former
employee or his or her dependents).
(l) For purposes of this Section 1.16, the terms "Employee Benefit
Arrangement," "Group Member," and "Plan" shall be interpreted to exclude all
reference to Atmos Entities under Section 8.1(l), (v) and (hh) hereof.
Section 1.17 Labor Matters. United Cities has previously delivered or made
available to Atmos true, correct and complete copies of all labor contracts
and collective bargaining agreements. Except as set forth in the United Cities
SEC Reports, there are no employee activities or controversies (including, but
not limited to, any labor organizing activities, election petitions or
proceedings preparatory thereto, unfair labor practice complaints, labor
strikes, disputes, slowdowns, or work stoppages) pending or, to United Cities'
knowledge, threatened, between any of the United Cities Entities and any of
their employees.
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Section 1.18 Disclosure; Information in the Proxy Statement/Prospectus. No
representation or warranty by United Cities in this Agreement and no statement
contained in any certificate furnished or to be furnished by United Cities to
Atmos pursuant to the provisions of this Agreement contains or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it is made,
in order to make the statements herein or therein not misleading. Any written
information supplied by United Cities specifically for inclusion or
incorporation by reference in the Proxy Statement/Prospectus and which is
included or incorporated by reference therein shall not, at the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is filed
with the SEC, at the time of the Atmos Shareholders Meeting, at the time of
the United Cities Shareholders Meeting, and at the time the Proxy
Statement/Prospectus becomes effective with the SEC as a registration
statement, be false or misleading with respect to any material fact, omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under
which they are made, not misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Atmos Shareholders Meeting or the
United Cities Shareholders Meeting that has become materially false or
misleading. If at any time prior to the Effective Time any event relating to
any of the United Cities Entities or any of their respective directors or
officers should be discovered by United Cities which should be set forth in a
supplement to the Proxy Statement/Prospectus, United Cities shall promptly
inform Atmos in writing. Notwithstanding the foregoing, United Cities makes no
representation or warranty with respect to any information to be contained in
the Proxy Statement/Prospectus other than information provided in writing by
United Cities specifically for inclusion or incorporation by reference in the
Proxy Statement/Prospectus.
Section 1.19 Insurance. United Cities has not failed to give any notice or
present any claim under any insurance policies or binders maintained by any of
the United Cities Entities with respect to their properties and business in
due and timely fashion. None of the United Cities Entities has received notice
of cancellation or nonrenewal of any such policy or binder.
Section 1.20 Broker's Fees. No broker, finder, or investment banker (other
than PaineWebber Incorporated) is entitled to any brokerage, finder's, or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of any of the
United Cities Entities.
Section 1.21 No United Cities Investment in Atmos Stock. None of the United
Cities Entities has acquired or is the beneficial owner of any Atmos Stock.
Section 1.22 Board Recommendation. The Board of Directors of United Cities
has, by resolutions duly adopted by the requisite vote of directors present at
a meeting of such Board duly called and held on July 19, 1996, determined that
the Merger in accordance with the terms of this Agreement and the Plan of
Merger is fair and in the best interests of its shareholders and has
recommended that the shareholders of United Cities approve the Merger and Plan
of Merger, and ratify this Agreement.
Section 1.23 PUHCA. Neither United Cities nor any other of the United Cities
Entities is required to register under PUHCA, or the rules and regulations
thereunder.
Section 1.24 Regulation as a Utility. United Cities is a regulated public
utility in the States of Tennessee, Illinois, Missouri, Georgia, South
Carolina, Virginia, Iowa, and Kansas and in no other state. Neither United
Cities nor any United Cities Entity is subject to regulation as a public
utility or public service company (or similar designation) by any other state
in the United States, by the United States or any agency or instrumentality of
the United States or by any foreign country, other than the Federal Energy
Regulatory Commission.
Section 1.25 Vote Required. The approval of the Merger by holders of a
majority of the shares of outstanding United Cities Stock is the only vote of
the holders of any class or series of the capital stock of United Cities
required to approve this Agreement, the Plan of Merger, the Merger, and the
other transactions contemplated hereby.
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Section 1.26 Opinion of Financial Advisor. United Cities has received the
opinion of PaineWebber Incorporated, dated the date hereof, to the effect
that, as of the date hereof, the exchange ratio set forth in the Plan of
Merger is fair to the holders of United Cities Stock from a financial point of
view.
ARTICLE 2
Representations and Warranties of Atmos
Atmos hereby represents and warrants to United Cities that the statements
set forth in this Article 2 are true, correct and complete as of the date of
this Agreement and will be true, correct and complete as of the Closing Date
as though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Article 2, except as otherwise set
forth in the Atmos Disclosure Schedule attached hereto as Exhibit B; provided,
that each matter set forth in the Atmos Disclosure Schedule shall be deemed to
be an exception only to those representations and warranties that are
specifically referenced by Section number in the Atmos Disclosure Schedule in
connection with such matter.
Section 2.1 Organization and Qualification.
(a) Atmos is a corporation duly organized, validly existing, and in good
standing under the laws of the jurisdictions of its incorporation and has all
requisite corporate power and authority and possesses all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates,
approvals, and orders (collectively, "Governmental Authorizations") necessary
to own, lease, and operate its properties and assets and to carry on its
business as it is now being conducted except where the failure to have any of
such Governmental Authorizations would not have a material adverse effect on
the business, operations, properties, condition (financial or otherwise),
assets or liabilities of the Atmos Entities, taken as a whole. Atmos is duly
qualified or licensed as a foreign corporation to do business, and is in good
standing, in each jurisdiction in which the character of the property owned,
leased, or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except in such jurisdictions (if
any) where the failure to be duly qualified or licensed does not and would not
have a material adverse effect on the business, operations, properties,
condition (financial or otherwise), assets or liabilities of the Atmos
Entities, taken as a whole.
(b) Atmos has not been a subsidiary or division of another corporation or
entity at any time during the two-year period prior to the date of this
Agreement.
(c) Atmos has heretofore delivered to United Cities true, correct, and
complete copies of Atmos' Articles of Incorporation and Bylaws, including all
amendments thereto.
Section 2.2 Subsidiaries.
(a) Atmos does not directly or indirectly own any equity or similar interest
in any corporation, partnership, joint venture, or other business association
or entity other than (i) Atmos Energy Services, a Delaware corporation that is
wholly owned by Atmos, (ii) EGASCO, Inc., a Texas corporation that is wholly
owned by Atmos, (iii) EnerMart, Inc., a Delaware corporation that is wholly
owned by Atmos, (iv) EnerMart Trust, a Pennsylvania business trust that is
wholly owned by EnerMart, Inc., (v) Trans Louisiana Industrial Gas Company,
Inc., a Louisiana corporation that is wholly owned by Atmos, and (vi) Western
Kentucky Gas Resources Company, a Delaware corporation that is wholly owned by
Atmos (collectively, the "Atmos Subsidiaries"). (Atmos and the Atmos
Subsidiaries are referred to collectively in this Agreement as the "Atmos
Entities.") Atmos is the sole record and beneficial owner of, and has good and
valid title to, all of the outstanding shares of capital stock of the Atmos
Subsidiaries other than EnerMart Trust, and EnerMart, Inc. is the sole record
and beneficial owner of, and has good and valid title to, all of the
outstanding equity ownership interests in EnerMart Trust, in each case free
and clear of all liens, mortgages, pledges, security interests or other
encumbrances. All of the outstanding capital stock of each of the Atmos
Subsidiaries that is a corporation, and, in the case of EnerMart Trust, the
equity ownership interest held by EnerMart, Inc., has been duly authorized and
validly issued, is fully paid and nonassessable.
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(b) Each of the Atmos Subsidiaries (other than EnerMart Trust) is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation and has all requisite corporate
power and authority and possesses all Governmental Authorizations necessary to
own, lease, and operate its properties and assets and to carry on its business
as it is now being conducted except where the failure to have any of such
Governmental Authorizations would not have a material adverse effect on the
business, operations, properties, condition (financial or otherwise), assets
or liabilities of the Atmos Entities, taken as a whole. Each of the Atmos
Subsidiaries (other than EnerMart Trust) is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction in which the character of the property owned, leased, or operated
by it or the nature of the business conducted by it makes such qualification
or licensing necessary, except in such jurisdictions (if any) where the
failure to be duly qualified or licensed does not and would not have a
material adverse effect on the business, operations, properties, condition
(financial or otherwise), assets or liabilities of the Atmos Entities, taken
as a whole.
(c) EnerMart Trust is a business trust duly organized, validly existing and
in good standing under the laws of the State of Pennsylvania and has all
requisite business trust power and authority to own, lease, and operate its
properties and assets and to carry on its business as it is now being
conducted.
(d) Atmos has heretofore delivered to United Cities true, correct and
complete copies of the Articles of Incorporation and Bylaws, including all
amendments thereto, of the Atmos Subsidiaries, and the organizational
documents of EnerMart Trust.
Section 2.3 Capitalization. The entire authorized capital stock of Atmos
consists of 75,000,000 shares of common stock, no par value ("Atmos Stock").
As of June 30, 1996, (a) 15,982,304 shares of Atmos Stock were issued and
outstanding, all of which were duly authorized, validly issued, fully paid,
and nonassessable and free of preemptive rights, and (b) no shares of Atmos
Stock were held in the treasury of Atmos. There are no options, warrants, or
other rights, agreements, arrangements, or commitments of any character
relating to the issued or unissued capital stock of the Atmos Entities or
obligating the Atmos Entities to issue or sell any shares of capital stock of,
or any securities convertible into or evidencing the right to purchase any
shares of capital stock of or other equity interests in, the Atmos Entities.
There are no obligations, contingent or otherwise, of the Atmos Entities to
repurchase, redeem, or otherwise acquire any shares of capital stock or other
equity interests in any of the Atmos Entities.
Section 2.4 Authority Relative to this Agreement. Atmos has all requisite
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and to consummate the transactions
contemplated hereby, subject to the approval of Atmos shareholders as
contemplated in this Agreement and the terms and conditions of this Agreement.
The execution and delivery of this Agreement by Atmos and the consummation by
Atmos of the transactions contemplated hereby have been duly and validly
authorized by Atmos' Board of Directors and, except for the approval of the
shareholders of Atmos, no other corporate proceedings on the part of Atmos are
necessary to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and delivered
by Atmos and constitutes the legal, valid, and binding obligation of Atmos and
is enforceable against Atmos in accordance with its terms, subject to
bankruptcy, insolvency, moratorium and other laws generally affecting
creditors' rights.
Section 2.5 No Conflict; Required Filings and Consents. The execution,
delivery, and performance of this Agreement by Atmos and the consummation by
Atmos of the transactions contemplated hereby in accordance with the terms and
conditions hereof, including the Merger, do not and will not:
(a) conflict with the Articles of Incorporation or Bylaws of the Atmos
Entities or, in the case of EnerMart Trust, its organizational documents;
(b) conflict with or violate any law, rule, regulation, order, judgment, or
decree applicable to any of the Atmos Entities or by which any of them or any
of their respective properties is bound or affected;
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(c) except for those consents and waivers required to be obtained pursuant
to Section 4.6, require from any person other than a governmental or
regulatory authority any consent, approval, or notice under, or violate,
result in any breach of, constitute a default (or an event that with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration, or cancellation of, or result
in the creation of a lien or encumbrance on any of the property or assets of
any of the Atmos Entities pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, or other instrument or obligation to
which any of the Atmos Entities is a party or by which any of the Atmos
Entities or any of their respective properties is bound or affected; or
(d) require any consent, approval, authorization, or permit of, or filing
with or notification to, any governmental or regulatory authority except (i)
the applicable requirements of federal and state securities laws, (ii) the
filing requirements under the Hart-Scott-Rodino Act, (iii) the filing and
recordation of appropriate merger or other documents as required by the Texas
Business Corporation Act, the Illinois Business Corporation Act, and the
Virginia Stock Corporation Act, (iv) approvals of the applicable state public
utility commissions in the states in which Atmos or United Cities is doing
business, and (v) approval of the Federal Energy Regulatory Commission.
Section 2.6 Compliance. None of the Atmos Entities is in breach, default, or
violation of, and no event has occurred or is occurring that with notice or
lapse of time or both would become a breach, default, or violation of, (a) any
of the Atmos Entities' Articles of Incorporation or Bylaws, or, in the case of
EnerMart Trust, its organizational documents, (b) any law, rule, regulation,
order, judgment, or decree applicable to any of the Atmos Entities or by which
any of them or any of their respective properties is bound or affected, or (c)
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise, or other instrument or obligation to which any of the Atmos
Entities is a party or by which any of them or any of their respective
properties is bound or affected, nor have any of them received and not finally
resolved any complaint, citation, or notice of a breach, default, or violation
of any of the foregoing nor are any threatened.
Section 2.7 Environmental Matters.
(a) No Hazardous Materials are now located in, on, at, upon, or under the
Subject Property currently owned or operated by any of the Atmos Entities or
have migrated or emanated, or threaten to migrate or emanate, to adjacent
property in a quantity or manner that is required to be reported under any
Environmental Requirements, or that is in violation of any Environmental
Requirements, or for which any of the Atmos Entities will be liable under any
Environmental Requirements for the cost of remediation or other response if
such costs are incurred by an Environmental Agency; and no Hazardous Materials
have been located in, on, at, upon, or under the Subject Property, or migrated
or emanated from the Subject Property at any time prior to or during the Use
of the Subject Property by any of the Atmos Entities in a quantity or manner
that is required to be reported under any Environmental Requirements, or that
is in violation of any Environmental Requirements, or for which any of the
Atmos Entities will be liable under any Environmental Requirements for the
cost of remediation or other response if such costs are incurred by an
Environmental Agency.
(b) No Hazardous Materials have been generated, stored, transported,
disposed of on-site, or sent off-site from, in, on, at, or upon the Subject
Property at any time during the Use of the Subject Property by any of the
Atmos Entities (or prior to the Use of the Subject Property by any of the
Atmos Entities) in a quantity or manner that is required to be reported under
any Environmental Requirements, or that is in violation of any Environmental
Requirements, or for which any of the Atmos Entities will be liable under any
Environmental Requirements for the cost of remediation or other response if
such costs are incurred by an Environmental Agency.
(c) There are no off-site locations where Hazardous Materials generated or
transported from the Subject Property have been stored, treated, recycled, or
disposed of by any of the Atmos Entities or their agents, employees, or
representatives in a quantity or manner that is required to be reported under
any Environmental Requirements, or that is in violation of any Environmental
Requirements, or for which any of the Atmos Entities
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will be liable under any Environmental Requirements for the cost of
remediation or other response if such costs are incurred by an Environmental
Agency.
(d) Each of the Atmos Entities has all permits, licenses, or authorizations
from any Environmental Agency that it is required to have by any Environmental
Requirement in order to operate any aspect of the Subject Property currently
operated by it or the business currently conducted at the Subject Property;
the Use of the Subject Property currently Used by each of the Atmos Entities,
including but not limited to any and all Environmental Activity, and all
Environmental Conditions, is and has been in compliance with all Environmental
Requirements during the Use of the Subject Property by each of the Atmos
Entities and at all times prior to its Use by each of the Atmos Entities.
(e) No Environmental Costs have been suffered by any of the Atmos Entities
or by any third party prior to or during the Use of the Subject Property by
any of the Atmos Entities, and Atmos is not aware of, and has not received
notice of, any past or present events, conditions, circumstances, activities,
practices, incidents, actions, or plans that may result in Environmental Costs
or that may give rise to any common law or legal liability based on or related
to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling or the emission, discharge, release, or
threatened release into the environment, of any pollutant, contaminant,
chemical, or industrial toxic or hazardous substance or waste or Hazardous
Materials.
(f) None of the Atmos Entities has Used, in the past, any facilities that
could reasonably be expected to subject any of the Atmos Entities to
Environmental Costs.
(g) All of the manufactured gas plants now or formerly Used by any of the
Atmos Entities and all locations where waste from these plants was disposed of
are set forth in the Atmos SEC Reports.
(h) All of the underground storage tanks located on the Subject Property are
set forth in the Atmos SEC Reports.
Section 2.8 Contracts. Atmos has made available to United Cities all
material contracts, loan agreements, indentures, commitments, and other
agreements or documents to which any of the Atmos Entities is a party or by
which any of the Atmos Entities or any of their respective properties is bound
or affected. All such contracts and instruments are in full force and effect
and no party thereto is in default thereunder and no default is threatened
thereunder.
Section 2.9 SEC Filings; Financial Statements; Absence of Undisclosed
Liabilities.
(a) Atmos has filed all forms, reports, and documents required to be filed
with the SEC since January 1, 1993, and has heretofore delivered or made
available to Atmos, in the form filed with the SEC, (i) its Annual Reports on
Form 10-K for the fiscal years ended September 30, 1993 through 1995, (ii) its
Quarterly Report on Form 10-Q for the periods ended December 31, 1995 and
March 31, 1996, (iii) all proxy statements relating to Atmos' meetings of
shareholders (whether annual or special) held since January 1, 1993, (iv) all
Forms 8-K filed by Atmos with the SEC since January 1, 1993, (v) all other
reports or registration statements filed by Atmos with the SEC since January
1, 1993, and (vi) all amendments and supplements to all such reports,
registration statements and proxy statements filed by Atmos with the SEC since
January 1, 1993 (collectively, the "Atmos SEC Reports"). As of their
respective dates, the Atmos SEC Reports were prepared in substantial
compliance with the requirements of the Securities Act or the Exchange Act, as
the case may be, and did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
the Atmos Entities other than Atmos is subject to the reporting requirements
of the Exchange Act.
(b) Atmos has heretofore delivered or made available to United Cities its
audited consolidated financial statements for its fiscal years ended September
30, 1993 through 1995 and its unaudited consolidated financial
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statements for the periods ended December 31, 1995 and March 31, 1996. All
such financial statements of Atmos that have been delivered or made available
to United Cities have been prepared in accordance with generally accepted
accounting principles applied (except as otherwise noted therein) on a
consistent basis throughout the periods covered thereby (subject, in the case
of any such financial statements that are unaudited, to year-end adjustments
in such amount and of such type as are or will be consistent with adjustments
made in prior fiscal years). The consolidated financial statements (together
with the related notes thereto) fairly present in all material respects the
consolidated financial condition and consolidated results of operation of
Atmos as of and for the respective dates indicated.
(c) None of the Atmos Entities has any liabilities or obligations (whether
accrued, absolute, contingent, known or unknown, or otherwise) that (i) are
not accrued or reserved against in the consolidated balance sheet of Atmos as
at March 31, 1996 or reflected in the notes thereto in accordance with
generally accepted accounting principles consistently applied or (ii) were
incurred after the date of such balance sheet outside of the ordinary course
of business of any of the Atmos Entities.
Section 2.10 Books and Records. Atmos has made available to United Cities,
and will continue to make available to United Cities, all of the Atmos
Entities' books, records, and certificates. All of such books, records, and
certificates are true, complete, and correct.
Section 2.11 Conduct of Business in Ordinary Course; Absence of Certain
Changes or Events. Since March 31, 1996, each of the Atmos Entities has
conducted its business only in the ordinary course; and, since such date,
there has not been any adverse change in the business, operations, properties,
condition (financial or otherwise), assets or liabilities of the Atmos
Entities, taken as a whole, or any condition, event, or development that will
result in an adverse change in the business, operations, properties, condition
(financial or otherwise), assets or liabilities of the Atmos Entities, taken
as a whole.
Section 2.12 Litigation. There are no material claims, actions, suits,
investigations, or proceedings pending or threatened against or affecting any
of the Atmos Entities or any of their respective properties or rights at law
or in equity before or by any court, arbitrator, or administrative,
governmental, or regulatory authority or body. None of the Atmos Entities nor
any of their respective properties is subject to any order, writ, judgment,
injunction, decree, determination, or award.
Section 2.13 Title to, and Condition of, Assets. Each of the Atmos Entities
has good and marketable title to, or a valid leasehold interest in, all of its
assets and properties, real and personal, including the properties, assets,
and leasehold interests reflected in the Atmos balance sheet dated March 31,
1996 referred to in Section 2.9 of this Agreement (except for any properties
or assets disposed of in the ordinary course of business since the date of
such balance sheet), necessary or appropriate for the operation of its
business, free and clear of all liens, mortgages, pledges, security interests,
or other encumbrances (except for matters set forth in the notes to such
balance sheet and the notes to the December 31, 1995 balance sheet). All of
the Atmos Entities' properties and assets are in good condition and repair
(ordinary wear and tear excepted) and are adequate and sufficient for the
conduct of the Atmos Entities' businesses.
Section 2.14 Intellectual Property. The Atmos Entities own or possess, or
can acquire on reasonable terms, the patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatentable proprietary or confidential information, systems or procedures),
trademarks, service marks and trade names presently employed by them in
connection with the business now operated by them, and none of the Atmos
Entities has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in any material adverse change in the business, operations, properties,
condition (financial or otherwise), assets or liabilities, of the Atmos
Entities, taken as a whole.
Section 2.15 Taxes. All Tax Returns of or relating to any Taxes that are
required to be filed with respect to Atmos and the Atmos Subsidiaries or any
of their income, properties, or operations have been duly filed on a
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timely basis and were true, complete, and correct. All Taxes attributable to
Atmos and the Atmos Subsidiaries or any of their income, properties, or
operations that are or were due and payable have been timely paid, and Atmos
and the Atmos Subsidiaries have no liability for any Taxes other than with
respect to their current taxable year for which adequate provisions have been
made and are reflected in Atmos' consolidated financial statements in
accordance with generally accepted accounting principles.
Section 2.16 Employee Benefit Plans.
(a) Atmos has previously delivered or made available to United Cities true,
correct and complete copies of (i) each Plan that is a "multiemployer plan,"
as defined in ERISA Section 4001, (ii) each other employee benefit plan as
defined in Section 3(3) of ERISA with respect to which an Atmos Entity or any
Group Member is a "Party in Interest," as defined in Section 3(14) of ERISA,
and (iii) each other Employee Benefit Arrangement.
(b) Each Atmos Entity, each Group Member, and each Plan is now, and has been
from its inception, in compliance with the provisions of ERISA and the Code
insofar as ERISA and the Code are applicable to such Plans. Each Plan intended
to be qualified under Section 401(a) of the Code has been determined to be so
qualified by the IRS and nothing has occurred since the date of the last such
determination which resulted or is likely to result in the revocation of such
determination. All required reports and descriptions of each Plan have been
timely filed and distributed as required by ERISA.
(c) There has not occurred with respect to any Plan any non-exempt
"Prohibited Transaction," as defined in either Section 406 of ERISA or Section
4975 of the Code.
(d) There has not occurred with respect to any Plan any "Reportable Event,"
as defined in Section 4043 of ERISA. No Plan has applied for or obtained a
waiver from the IRS of any minimum funding requirement under Section 412 of
the Code.
(e) (i) No Plan has been terminated, and no withdrawal from any
"multiemployer plan," as defined in Section 4001 of ERISA, has occurred since
the inception of any Plan under circumstances that have given rise to, or
would give rise to, any actual or potential liability to the PBGC or any other
person (excluding liabilities to participants (other than any liability for
unpaid benefits) for benefits payable in the normal course of events pursuant
to any such termination or withdrawal), (ii) no event or condition exists
which presents a risk of termination of any Plan by the PBGC, and (iii) there
is no actual or potential liability to the PBGC or any other person expected
by the Atmos Entities or any Group Member to be incurred with respect to any
Plan, including, but not limited to, any liability for premium payments, for
any accumulated funding deficiency as defined in Section 302 of ERISA or for
any minimum funding contribution under Section 302 of ERISA.
(f) The current value (as defined in Section 4062(b)(1)(A) of ERISA) of all
accrued benefits (as defined in Section 3 of ERISA) under each Plan which is a
plan subject to the provisions of Title IV of ERISA does not, as of the date
of the most recent actuarial report for such Plan exceed the current value of
the assets of such Plan allocable to such accrued benefits, except with
respect to the Greeley Gas Company Employees' Pension Plan.
(g) No lien imposed under Section 412(n) of the Code exists in favor of any
Plan upon any property belonging to a Group Member.
(h) Atmos has previously delivered or made available to United Cities true,
correct and complete copies of the annual reports and actuarial reports for
the preceding two plan years (1993 and 1994) filed with respect to each such
Plan and Employee Benefit Arrangement, summary plan descriptions and other
communications to employees relating to each such Plan and Employee Benefit
Arrangement, any related trust or third-party funding vehicle documents and
related financial statements, and all letters from the IRS, if any, confirming
the tax-exempt status or qualification under Section 401(a) of the Code of any
Plan. There are no Plans or Employee Benefit Arrangements other than those
previously delivered and made available to United Cities.
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(i) Neither (i) the Atmos Entities, or any director, officer, employee, or
agent of an Atmos Entity, has, with respect to any Plan, nor (ii) any Plan or
trust created thereunder or trustee or administrator thereof has, engaged in
any conduct that would result in any penalties under Section 502(i) of ERISA
or any liability under Section 409 of ERISA for breach of fiduciary duty. No
civil or criminal action or claim (other than uncontested claims for benefits)
is pending or threatened with respect to any Plan.
(j) None of the Atmos Entities, any Group Member, or any director, officer,
or employee of any of the foregoing have taken any elective action that would
commit an Atmos Entity to continue any Plan or Employee Benefit Arrangement or
any benefit thereunder for any present or former employee of an Atmos Entity
or that would prevent such Atmos Entity from changing or terminating any such
benefit or plan; provided, that this representation shall not be construed to
apply with respect to any express provision of a document which provides for
such effect without further action or election by such persons.
(k) No Atmos Entity now has in effect, or previously had in effect, any
welfare benefit plan, commitment, understanding, or arrangement providing for
medical or death benefits (whether insured or uninsured) with respect to
current or former employees beyond their date of retirement or other
termination of service (other than coverage mandated by Section 4980B of the
Code and Section 601 of ERISA, the cost of which is fully paid by the former
employee or his or her dependents), except as otherwise provided under the
Atmos Energy Corporation Retiree Medical Plan.
(l) For purposes of this Section 2.16, the terms "Employee Benefit
Arrangement," "Group Member" and "Plan" shall be interpreted to exclude all
reference to United Cities Entities under Section 8.1(l), (v) and (hh) hereof.
Section 2.17 Labor Matters. Atmos has no labor contracts or collective
bargaining agreements. There are no employee activities or controversies
(including, but not limited to, any labor organizing activities, election
petitions or proceedings preparatory thereto, unfair labor practice
complaints, labor strikes, disputes, slowdowns, or work stoppages) pending or,
to Atmos' knowledge, threatened, between any of the Atmos Entities and any of
their employees.
Section 2.18 Disclosure; Information in the Proxy Statement/Prospectus. No
representation or warranty by Atmos in this Agreement and no statement
contained in any certificate furnished or to be furnished by Atmos to United
Cities pursuant to the provisions of this Agreement contains or will contain
any untrue statement of material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it is made,
in order to make the statements herein or therein not misleading. Any written
information supplied by Atmos specifically for inclusion or incorporation by
reference in the Proxy Statement/Prospectus and which is included or
incorporated by reference therein shall not, at the date the Proxy
Statement/Prospectus (or any amendment thereof or supplement thereto) is filed
with the SEC, at the time of the Atmos Shareholders Meeting, at the time of
the United Cities Shareholders Meeting, and at the time the Proxy
Statement/Prospectus becomes effective with the SEC as a registration
statement, be false or misleading with respect to any material fact, omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in the light of the circumstances under
which they are made, not misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Atmos Shareholders Meeting or the
United Cities Shareholders Meeting that has become materially false or
misleading. If at any time prior to the Effective Time any event relating to
any of the Atmos Entities or any of their respective directors or officers
should be discovered by Atmos which should be set forth in a supplement to the
Proxy Statement/Prospectus, Atmos shall promptly inform United Cities in
writing. Notwithstanding the foregoing, Atmos makes no representation or
warranty with respect to any information to be contained in the Proxy
Statement/Prospectus and provided in writing by United Cities specifically for
inclusion or incorporation by reference in the Proxy Statement/Prospectus.
Section 2.19 Insurance. Atmos has not failed to give any notice or present
any claim under any insurance policies or binders maintained by any of the
Atmos Entities with respect to their properties and
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business in due and timely fashion. None of the Atmos Entities has received
notice of cancellation or nonrenewal of any such policy or binder.
Section 2.20 Broker's Fees. No broker, finder, or investment banker (other
than Merrill Lynch, Pierce, Fenner & Smith Incorporated) is entitled to any
brokerage, finder's, or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of any of the Atmos Entities.
Section 2.21 No Atmos Investment in United Cities Stock. None of the Atmos
Entities has acquired or is the beneficial owner of any United Cities Stock.
Section 2.22 Board Recommendation. The Board of Directors of Atmos has, by
resolutions duly adopted by the requisite vote of directors present at a
meeting of such Board duly called and held on July 19, 1996, determined that
the Merger in accordance with the terms of this Agreement and the Plan of
Merger is fair and in the best interests of its shareholders and has
recommended that the shareholders of Atmos approve the Merger and Plan of
Merger, and ratify this Agreement.
Section 2.23 PUHCA. Neither Atmos nor any other of the Atmos Entities is
required to register under PUHCA, or the rules and regulations thereunder.
Section 2.24 Regulation as a Utility. Atmos is a regulated public utility in
the States of Texas, Louisiana, Kentucky, Colorado, Missouri and Kansas and in
no other state. Neither Atmos nor any Atmos Entity is subject to regulation as
a public utility or public service company (or similar designation) by any
other state in the United States, by the United States or any agency or
instrumentality of the United States or by any foreign country.
Section 2.25 Vote Required. The approval of the Merger by holders of two-
thirds of the shares of outstanding Atmos Stock is the only vote of the
holders of any class or series of the capital stock of Atmos required to
approve this Agreement, the Plan of Merger, the Merger, and the other
transactions contemplated hereby.
Section 2.26 Opinion of Financial Advisor. Atmos has received the opinion of
Merrill Lynch, Pierce, Fenner & Smith Incorporated, dated the date hereof, to
the effect that, as of the date hereof, the exchange ratio set forth in the
Plan of Merger is fair to Atmos from a financial point of view.
ARTICLE 3
Covenants of United Cities
Section 3.1 Conduct of Business by United Cities Pending the Merger. United
Cities covenants and agrees that, between the date of this Agreement and the
Effective Time, unless Atmos shall otherwise agree in writing, each of the
United Cities Entities shall conduct its business only in the ordinary course
of business and in a manner consistent with past practice; and United Cities
shall use its best efforts to maintain the corporate existence of each of the
United Cities Entities and preserve substantially intact the business and
organization of each of the United Cities Entities, to keep available the
services of its present officers, employees, and consultants, and to preserve
the relationships and goodwill of each of the United Cities Entities with its
customers, suppliers, and other persons with which it has significant business
relations. By way of amplification but not limitation, United Cities shall not
and shall not permit any of the United Cities Subsidiaries, between the date
of this Agreement and the Effective Time, directly or indirectly, to do, agree
to do, or propose to do any of the following without the prior written consent
of Atmos:
(a) amend or otherwise change its Articles of Incorporation, Bylaws,
Certificate of Formation or Limited Liability Company Agreement;
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(b) issue, sell, pledge, dispose of, or encumber, or authorize the
issuance, sale, pledge, disposition, or encumbrance of, (i) any shares of
capital stock of any class, or any options, warrants, convertible
securities, or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest, of any of the United Cities
Entities (other than in the ordinary course of business pursuant to United
Cities' Long-Term Stock Plan of 1989, Non-Employee Director Stock Plan,
Employee Stock Purchase Plan, Customer Stock Purchase Plan, Dividend
Reinvestment and Stock Purchase Plan, and 401(k) Savings Plan), except that
United Cities may issue shares of its common stock upon the exercise or
conversion in accordance with their terms of any options, warrants,
convertible securities or other rights to acquire such stock that were
outstanding on the date of this Agreement and disclosed in the United
Cities Disclosure Schedule or (ii) any assets of any of the United Cities
Entities (except for sales of assets in the ordinary course of business and
in a manner consistent with past practice);
(c) declare, set aside, make, or pay any dividend or other distribution,
payable in cash, stock, property, or otherwise, with respect to any of its
capital stock, except for regular quarterly cash dividends declared and
paid by United Cities in a manner and amount consistent with past practice,
and dividends declared and paid by the United Cities Subsidiaries;
(d) reclassify, combine, split, subdivide or redeem, purchase, or
otherwise acquire or offer to acquire, directly or indirectly, any of its
capital stock;
(e) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership, or other business organization or division
thereof, except for acquisitions, the fair market value of the
consideration for which exceeds $3,000,000 individually or $10,000,000 in
the aggregate, or acquire any shares of Atmos Stock;
(f) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee, or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans or advances (except for indebtedness incurred under existing
lines of credit in the ordinary course of business consistent with past
practice and except for indebtedness issued under United Cities' currently
effective shelf registration statement in a principal amount not to exceed
$15,000,000 in the aggregate), or mortgage, pledge or subject to any lien
or other encumbrance any assets of any of the United Cities Entities;
(g) enter into or amend any contract, agreement, commitment, or
arrangement other than in the ordinary course of business;
(h) authorize any capital expenditures that are in excess of (i) $500,000
for any single project and (ii) $30,000,000 in the aggregate since July 1,
1996;
(i) increase the compensation payable or to become payable to its
officers or employees, except for increases in salary or wages of non-
officer employees of the United Cities Entities in accordance with past
practices or grant any severance or termination pay or stock options to, or
enter into any employment or severance agreement with any director,
officer, or other employee of any of the United Cities Entities, or
establish, adopt, enter into, or amend any collective bargaining, bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance, or other plan, agreement, trust, fund, policy, or arrangement
for the benefit of any current or former directors, officers, or employees;
(j) make any loan or advance (except for normal business expense
advances) to any of the United Cities Entities' directors, officers,
employees, or shareholders (of United Cities), or to any other person or
entity or cancel without payment in full any note, loan, or other
obligation receivable from any director, officer, employee, or shareholder
of any of the United Cities Entities or any member of their families or
from any corporation or other entity in which any director, officer,
employee, or shareholder or any member of their families has any direct or
indirect interest known to United Cities;
(k) take any action other than in the ordinary course of business and in
a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable);
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(l) make any tax election or settle or compromise any material federal,
state, local, or foreign income tax liability or settle, waive, or
compromise any other material claim, including litigation;
(m) pay, discharge, or satisfy any claims, liabilities, or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than as may be paid, discharged, or satisfied in the ordinary course of
business and consistent with past practice;
(n) take any action or omit to take any necessary action, which action or
omission results in any breach of or constitutes a default (or an event
that with notice or lapse of time or both would become a default) under any
material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, or other instrument or obligation to which any
of the United Cities Entities is a party or by which any of the United
Cities Entities or any of their respective properties is bound or affected;
or
(o) cause any circumstance that might result in a Material adverse change
in the business, operations, properties, condition (financial or
otherwise), assets or liabilities of the United Cities Entities, taken as a
whole.
Section 3.2 No Solicitation of Competing Transaction. Subject to the
provisions of Section 3.11 below, United Cities agrees that it shall (a) not,
and that it shall not permit any of the United Cities Subsidiaries or any of
its or their respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker,
attorney or accountant) to, initiate, solicit or encourage (including by way
of furnishing information or assistance), or take any other action to
facilitate, any inquiries concerning, or the making or implementation of, any
proposal relating to, or that may reasonably be expected to lead to any
Competing Transaction, or engage in any negotiations concerning, agree to or
endorse, provide any confidential information or data to, or have any
discussions with, any person relating to, a Competing Transaction; and (b)
notify Atmos promptly if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, United Cities or any of the
United Cities Subsidiaries, or any of its or their officers, directors,
employees, agents and representatives (such notification to include the terms
of the inquiry or proposal, the identity of the parties making such inquiry or
proposal and, if such inquiry or proposal is in writing, a copy of the inquiry
or proposal).
Section 3.3 Access to Information. From the date hereof to the Effective
Time, United Cities will, and will cause its directors, officers, employees,
and agents to, permit and afford Atmos and its representatives full and
complete access at all reasonable times to the employees, offices, properties,
books, and records of the United Cities Entities, including the audit work
papers of, and all correspondence with, its certified public accountants, and
will furnish Atmos with all financial, operating, and other data and
information as Atmos, through its officers, employees, or representatives, may
reasonably request.
Section 3.4 Environmental Audit and Covenants.
(a) Upon execution of this Agreement, United Cities and Atmos shall
cooperate to provide such information, files and documents as United Cities
and Atmos shall reasonably request of the other party concerning the
Environmental Activities and Environmental Condition of the respective
parties. Within sixty (60) days ("Initial Environmental Inspection Period")
after the date of this Agreement, United Cities and Atmos shall meet and
mutually agree upon a site assessment and environmental compliance audit of
the Subject Property currently Used by each of the United Cities Entities and
any Subject Property formerly Used by any of the United Cities Entities and
described in the United Cities Disclosure Schedule pursuant to Section 1.7(f),
which assessment and audit shall be in scope, form, and substance ("Scope"),
and prepared by an independent, competent, and qualified engineer, reasonably
satisfactory to United Cities and to Atmos (the "Environmental Audit"). United
Cities shall not withhold its agreement to a Scope that does not involve any
invasive or subsurface testing, provided that such Scope is reasonable based
upon the information obtained during the Initial Environmental Inspection
Period. The terms of the engagement of the engineer shall be approved by
United Cities and Atmos. The engagement agreement shall provide that the
Environmental Audit shall be issued to United Cities and Atmos and that United
Cities and Atmos shall have all of the same rights as United Cities
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under the engagement agreement. Any investigation conducted by Atmos prior to
the earlier of the expiration of the Initial Environmental Inspection Period
or the agreement upon the Scope will be at the expense of Atmos. Within ninety
(90) days ("Additional Environmental Investigation Period") of the end of the
Initial Environmental Inspection Period, United Cities shall cause to be
prepared and submit to Atmos the Environmental Audit at the sole cost and
expense of the United Cities Entities.
(b) In the event that United Cities and Atmos cannot agree upon a Scope for
the Environmental Audit, then Atmos, at its sole discretion, may during the
Initial Environmental Inspection Period, commission at its sole cost and
expense such additional investigation and assessment work as Atmos determines
is reasonable, but which United Cities does not approve ("Additional
Assessment"), and this Additional Assessment will be part of the Scope;
provided, however, in no event shall surface or subsurface soil or groundwater
sampling or assessment ("Sampling") of a Subject Property previously or
currently held as a manufacturing gas plant be a part of the Scope. The United
Cities Entities will pay the agreed upon portions of the Scope and Atmos will
pay the costs of the Additional Assessment. United Cities agrees to permit
Atmos to enter upon the Subject Property within United Cities' control to
perform the Additional Assessment, provided, however, that United Cities shall
have the right, and Atmos' permission to enter is so limited, to refuse to
permit Atmos to enter upon any Subject Property previously or currently held
as a manufactured gas plant to perform Additional Assessment work that
involves Sampling.
(c) The Environmental Audit shall include a "Disclosure Summary" that
specifically addresses any exceptions to the representations and warranties
set forth in Section 1.7 of this Agreement and shall include a "Conclusion"
section that states whether there is a low, medium, or high probability of
environmental impairment or liability associated with a Subject Property,
whether the current operations of each United Cities Entity at a Subject
Property are in compliance with Environmental Requirements, and whether
further investigation is recommended. If further investigation is recommended
by the initial Environmental Audit, the scope and extent of this investigation
and the engineer performing the investigation must be mutually approved by
United Cities and Atmos. All costs of the further investigation shall be paid
by United Cities. Except in connection with the right to refuse access to any
Subject Property previously used as a manufactured gas plant, the agreement of
United Cities to any additional investigation will not be unreasonably
withheld.
(d) United Cities further agrees that prior to Closing it shall:
(i) comply with all applicable Environmental Requirements relating to the
Subject Property currently Used by United Cities and the Use of such
Subject Property by United Cities, and not engage in or permit others to
engage in any Environmental Activity in violation of any applicable
Environmental Requirements;
(ii) deliver to Atmos no later than three (3) days following the
occurrence of any such event, written notice of the discovery by United
Cities of any event, the occurrence of which would render any
representation or warranty contained in Section 1.7 of this Agreement
incorrect in any material respect if made at the time of such discovery;
and
(iii) cause any party who Uses the Subject Property currently Used by
United Cities to comply with this Section 3.4(d).
Section 3.5 Consents and Approvals.
(a) United Cities shall use all reasonable efforts to obtain all consents,
waivers, approvals, authorizations, and orders of all third parties and local,
state, and federal governmental authorities (including, but not limited to,
the approvals of the Iowa Utility Board, Kansas Corporation Commission,
Missouri Public Service Commission, Illinois Commerce Commission, Tennessee
Regulatory Authority, Georgia Public Service Commission, South Carolina Public
Service Commission, Virginia State Corporation Commission and the Federal
Energy Regulatory Commission required in connection with the authorization,
execution, and delivery of this Agreement and the consummation of the
transactions contemplated hereby. United Cities shall attend all proceedings
of, and file all documents with, the Iowa Utility Board, Kansas Corporation
Commission, Missouri Public Service Commission, Illinois Commerce Commission,
Tennessee Regulatory Authority, Georgia Public Service Commission,
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South Carolina Public Service Commission, Virginia State Corporation
Commission and the Federal Energy Regulatory Commission that are necessary to
obtain each of such commissions' approval of the Merger. United Cities shall
also cooperate with and assist Atmos in all proceedings before and in the
preparation and filing of any documents it is required to file with the
Colorado Public Utilities Commission, Kansas Corporation Commission, Kentucky
Public Service Commission, and Missouri Public Service Commission, and with
respect to the preparation of the Proxy Statement/Prospectus and Listing
Application to the NYSE.
(b) United Cities shall, as soon as practicable after the date of this
Agreement, file any Notification and Report Forms and related material that it
may be required to file with the Federal Trade Commission and the Antitrust
Division of the Department of Justice under the Hart-Scott-Rodino Act, shall
use its reasonable efforts to obtain an early termination of the applicable
waiting period, and shall make any further filings pursuant thereto that may
be necessary, proper, or advisable and respond as promptly as practicable to
all inquiries received from the Federal Trade Commission or the Antitrust
Division of the Department of Justice for additional information or
documentation.
(c) United Cities shall use all reasonable efforts to arrange for the
transfer to Atmos on the Closing Date of all permits required by Environmental
Requirements for the Use of the Subject Property and all other permits
material to the continued operation of United Cities' business.
Section 3.6 Meeting of United Cities Shareholders. As soon as practicable
following the approval by the SEC of the Proxy Statement/Prospectus, United
Cities shall take all action necessary in accordance with the Illinois
Business Corporation Act and Virginia Stock Corporation Act and its Articles
of Incorporation and Bylaws to convene a meeting of its shareholders promptly
to consider and vote upon approval of the Merger and the Plan of Merger, and
the ratification of this Agreement. United Cities shall, subject to Section
3.11, use its reasonable efforts to solicit from the shareholders of United
Cities proxies in favor of such approval and ratification and take all other
action reasonably necessary or, in the reasonable opinion of United Cities,
helpful to secure a vote of the shareholders of United Cities in favor of the
Merger and the Plan of Merger, and the ratification of this Agreement.
Section 3.7 Shareholder Appraisal Rights. United Cities shall not settle or
compromise any claim for shareholder appraisal rights in respect of the Merger
prior to the Effective Time without the prior written consent of Atmos.
Section 3.8 Insurance. Through the Effective Time, United Cities shall
maintain in full force and effect all of the policies of insurance of the
United Cities Entities that were in effect on the date hereof or insurance
comparable to the coverage afforded by such policies.
Section 3.9 Agreement of Certain United Cities Shareholders Regarding Rule
145 Compliance. At or prior to the Closing Date, United Cities shall deliver
to Atmos a certificate identifying each of its shareholders who in United
Cities' reasonable judgment is an affiliate of United Cities for purposes of
SEC Rule 145 and shall use all reasonable efforts to obtain from such
affiliates a written agreement, in form and substance satisfactory to Atmos,
not to offer to sell, sell, or otherwise dispose of any shares of Atmos Stock
received in the Merger (a) except pursuant to an effective registration
statement under the Securities Act or in compliance with SEC Rule 145, as
amended from time to time, or in a transaction which, in the opinion of legal
counsel (such opinion and counsel being reasonably satisfactory to Atmos) is
exempt from the registration requirements of the Securities Act and (b) in no
event at any time prior to the public release and dissemination by Atmos of
financial results covering at least thirty (30) days of the combined
operations of Atmos and United Cities. Such agreement shall also include the
agreement and acknowledgement of each of such shareholders that his or her
shares of Atmos Stock received in the Merger shall contain a legend setting
forth the restrictions that such shares may be sold only as provided in this
Section 3.9.
Section 3.10 Cooperation in Registration of Atmos Stock. United Cities shall
cooperate fully with Atmos and shall furnish such information concerning
United Cities as Atmos shall request in connection with
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the registration with the SEC by Atmos of the Atmos Stock and the preparation
and filing with the SEC by Atmos of the Proxy Statement/Prospectus in
connection with the Atmos Shareholders Meeting. In addition, United Cities
shall obtain the consent of Arthur Andersen LLP to the inclusion of such
audited financial statements of United Cities in the Proxy
Statement/Prospectus as may be necessary or desirable, as determined by Atmos.
Section 3.11 Fiduciary Limitations.
(a) Nothing contained in this Agreement, including without limitation
Sections 3.1, 3.2 and 5.6(b) hereof, shall prohibit United Cities from (i)
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited contact in connection with a
bona fide Competing Transaction, if, and only to the extent that,
(A) the Board of Directors of United Cities determines in good faith,
based on, among other matters, the written advice of independent legal
counsel (which for the purposes of this Agreement includes Chapman and
Cutler), that such action is required for the Board of Directors to comply
with its fiduciary duties to shareholders imposed by law;
(B) prior to United Cities furnishing any confidential information to
such other person, such other person executes a confidentiality agreement
with United Cities in customary form;
(C) prior to furnishing such information to, or entering into discussions
(other than responding to an initial inquiry) or negotiations with, such
person or entity, United Cities provides written notice to Atmos to the
effect that it is furnishing information to, or entering into discussions
or negotiations with, such person or entity; and
(D) United Cities keeps Atmos reasonably informed of the status of any
such discussions or negotiations; or
(ii) taking or disclosing to the shareholders of United Cities a position
with respect to any such Competing Transaction, or the Merger that, in the
judgment of the Board of Directors of United Cities, as determined in good
faith based on, among other matters, the written advice of independent legal
counsel, is required for the Board of Directors to comply with its fiduciary
duties to shareholders imposed by law, and, to the extent applicable,
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
Competing Transaction.
(b) Nothing in this Section 3.11 shall (i) permit United Cities to terminate
this Agreement (except as specifically provided in Section 7.1 hereof), or
(ii) permit United Cities to enter into any agreement with respect to a
Competing Transaction during the term of this Agreement (it being agreed that
during the term of this Agreement, United Cities shall not enter into any
agreement with any person that provides for, or in any way facilitates, a
Competing Transaction (other than a confidentiality agreement in customary
form)).
Section 3.12 Delivery of Monthly Financials. United Cities shall deliver to
Atmos, as promptly as practicable following the end of each calendar month
after the date of this Agreement, its consolidated monthly financial
statements prepared in the ordinary course of its business.
Section 3.13 Termination of Supplemental Executive Retirement Plan. Prior to
Closing, United Cities shall have (a) terminated the United Cities and
Subsidiaries Supplemental Executive Retirement Plan and all accompanying
Joinder Agreements and (b) obtained waivers and releases from all "active
participants" (as defined in such Plan), with respect to any and all rights
and benefits to which they were entitled thereunder. In consideration for such
waivers and releases, United Cities shall pay to each such participant an
amount equal to one dollar less than three hundred percent (300%) of the
average of such participant's compensation paid by United Cities and included
in his or her gross income for Federal income tax purposes for the five (5)-
year period ending on the December 31 immediately preceding the Closing Date;
provided that, the aggregate of all such
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payments shall not exceed $5,100,000. Notwithstanding the preceding provisions
of this Section 3.13, Mr. Gene Koonce shall, prior to the Closing Date, be
given the option to (i) provide a waiver and release with respect to his
rights and benefits under the United Cities Gas and Subsidiaries Supplemental
Executive Retirement Plan, in which event he shall participate in the Atmos
Supplemental Executive Benefits Plan or (ii) continue to be entitled to his
rights and benefits under the United Cities Gas and Subsidiaries Supplemental
Executive Retirement Plan and not be entitled to participate in the Atmos
Supplemental Executive Benefits Plan.
Section 3.14 Directors' and Officers' Insurance. United Cities shall use its
best efforts to procure a policy of directors' and officers' liability
insurance, to be effective for a period of five (5) years, with respect to
matters involving United Cities and occurring prior to the consummation of the
Merger, and, if United Cities does obtain such a policy, to use its best
efforts to assign the benefits of such policy to Atmos following the
consummation of the Merger.
ARTICLE 4
Covenants of Atmos
Section 4.1 Conduct of Business by Atmos Pending the Merger. Atmos covenants
and agrees that, between the date of this Agreement and the Effective Time,
unless United Cities shall otherwise agree in writing, each of the Atmos
Entities shall conduct its business only in the ordinary course of business
and in a manner consistent with past practice; and Atmos shall use its best
efforts to maintain the corporate existence of each of the Atmos Entities that
is a corporation and preserve substantially intact the business and
organization of each of the Atmos Entities. Atmos shall not and shall not
permit any of the Atmos Subsidiaries, between the date of this Agreement and
the Effective Time, directly or indirectly, to do, agree to do, or propose to
do any of the following without the prior written consent of United Cities:
(a) except as otherwise contemplated by this Agreement, amend or
otherwise change its Articles of Incorporation or Bylaws;
(b) issue, sell, pledge, dispose of, or encumber, or authorize the
issuance, sale, pledge, disposition, or encumbrance of, (i) any shares of
capital stock of any class, or any options, warrants, convertible
securities, or other rights of any kind to acquire any shares of capital
stock, or any other ownership interest, of any of the Atmos Entities (other
than in the ordinary course of business pursuant to Atmos' Restricted Stock
Grant Plan, Dividend Reinvestment and Stock Purchase Plan, Employee Stock
Ownership Plan and Directors' Stock for Fee Plan), except that Atmos may
issue shares of its common stock upon the exercise or conversion in
accordance with their terms of any options, warrants, convertible
securities or other rights to acquire such stock that were outstanding on
the date of this Agreement and disclosed in the Atmos Disclosure Schedule
or (ii) any assets of any of the Atmos Entities (except for sales of assets
in the ordinary course of business and in a manner consistent with past
practice);
(c) declare, set aside, make, or pay any dividend or other distribution,
payable in cash, stock, property, or otherwise, with respect to any of its
capital stock, except for regular quarterly cash dividends declared and
paid in a manner and amount consistent with past practice;
(d) reclassify, combine, split, subdivide or redeem, purchase, or
otherwise acquire or offer to acquire, directly or indirectly, any of its
capital stock;
(e) acquire (by merger, consolidation, or acquisition of stock or assets)
any corporation, partnership, or other business organization or division
thereof, except for acquisitions the consideration for which exceeds
$10,000,000 individually or $20,000,000 in the aggregate, or acquire any
shares of United Cities Stock;
(f) make any loan or advance (except for normal business expense
advances) to any of the Atmos Entities' directors, officers, employees, or
shareholders (of Atmos), or to any other person or entity or cancel
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without payment in full any note, loan, or other obligation receivable from
any director, officer, employee, or shareholder of any of the Atmos
Entities or any member of their families or from any corporation or other
entity in which any director, officer, employee, or shareholder or any
member of their families has any direct or indirect interest known to
Atmos;
(g) take any action other than in the ordinary course of business and in
a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to accounting policies or procedures
(including, without limitation, procedures with respect to the payment of
accounts payable and collection of accounts receivable);
(h) take any action or omit to take any necessary action, which action or
omission results in any breach of or constitutes a default (or an event
that with notice or lapse of time or both would become a default) under any
material note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, or other instrument or obligation to which any
of the Atmos Entities is a party or by which any of the Atmos Entities or
any of their respective properties is bound or affected; or
(i) cause any circumstance that might result in a Material adverse change
in the business, operations, properties, condition (financial or
otherwise), assets or liabilities of the Atmos Entities, taken as a whole.
Section 4.2 Meeting of Atmos Shareholders. As soon as practicable following
the approval by the SEC of the Proxy Statement/Prospectus, Atmos shall take
all action necessary in accordance with the Texas Business Corporation Act and
its Articles of Incorporation and Bylaws to convene a meeting of its
shareholders promptly to consider and vote upon approval of the Merger and the
Plan of Merger, the ratification of this Agreement, and the approval of the
issuance of the Atmos Stock to the United Cities shareholders. Atmos will use
its reasonable efforts to solicit from the shareholders of Atmos proxies in
favor of such approvals and ratification and will take all other action
reasonably necessary or, in the reasonable opinion of Atmos, helpful to secure
a vote of the shareholders of Atmos in favor of the Merger and the Plan of
Merger, the ratification of this Agreement, and the issuance of Atmos Stock
contemplated hereby and thereby.
Section 4.3 Registration and Listing of Atmos Stock. As soon as practicable
after the date of this Agreement, Atmos will file a registration statement on
Form S-4 with the SEC under the Securities Act with respect to the offering,
sale, and delivery of the shares of Atmos Stock to be issued to United Cities'
shareholders pursuant to this Agreement and the Plan of Merger; and Atmos will
use all reasonable efforts to cause such registration statement to become
effective as promptly as practicable after filing and to cause the shares of
Atmos Stock registered thereby to be duly listed for trading on the NYSE.
Atmos shall also use all reasonable efforts to take any action required to be
taken under state securities laws with respect to the Atmos Stock.
Section 4.4 Access to Information. From the date hereof to the Effective
Time, Atmos will, and will cause its directors, officers, employees, and
agents to, permit and afford United Cities and its representatives full and
complete access at all reasonable times to the employees, offices, properties,
books, and records of the Atmos Entities, including the audit work papers of,
and all correspondence with, its certified public accountants, and will
furnish United Cities with all financial, operating, and other data and
information as United Cities, through its officers, employees, or
representatives, may reasonably request.
Section 4.5 Environmental Covenants. Atmos agrees that prior to Closing it
shall:
(a) comply with all applicable Environmental Requirements relating to the
Subject Property currently Used by Atmos and the Use of such Subject
Property by Atmos, and not engage in or permit others to engage in any
Environmental Activity in violation of any applicable Environmental
Requirements;
(b) deliver to United Cities no later than three (3) days following the
occurrence of any such event, written notice of the discovery by Atmos of
any event, the occurrence of which would render any representation or
warranty contained in Section 2.7 of this Agreement incorrect in any
material respect if made at the time of such discovery; and
(c) cause any party who Uses the Subject Property currently Used by Atmos
to comply with this Section 4.5.
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Section 4.6 Consents and Approvals.
(a) Atmos shall use all reasonable efforts to obtain all consents, waivers,
approvals, authorizations, and orders of all third parties and local, state,
and federal governmental authorities (including, but not limited to, the
approvals of the Colorado Public Utilities Commission, Kansas Corporation
Commission, Kentucky Public Service Commission, and Missouri Public Service
Commission) required in connection with the authorization, execution, and
delivery of this Agreement and the consummation of the transactions
contemplated hereby. Atmos shall attend all proceedings of, and file all
documents with, the Colorado Public Utilities Commission, Kansas Corporation
Commission, Kentucky Public Service Commission, and Missouri Public Service
Commission that are necessary to obtain each of such commissions' approval of
the Merger. Atmos shall also cooperate with and assist United Cities in all
proceedings before and in the preparation and filing of any documents it is
required to file with the Iowa Utility Board, Kansas Corporation Commission,
Missouri Public Service Commission, Illinois Commerce Commission, Tennessee
Regulatory Authority, Georgia Public Service Commission, South Carolina Public
Service Commission, Virginia State Corporation Commission and the Federal
Energy Regulatory Commission.
(b) Atmos shall, as soon as practicable after the date of this Agreement,
file any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust Division
of the Department of Justice under the Hart-Scott-Rodino Act, shall use its
reasonable efforts to obtain an early termination of the applicable waiting
period, and shall make any further filings pursuant thereto that may be
necessary, proper, or advisable and respond as promptly as practicable to all
inquiries received from the Federal Trade Commission or the Antitrust Division
of the Department of Justice for additional information or documentation.
Section 4.7 Employees and Employee Benefits.
(a) At the Effective Time, all employees of the United Cities Entities shall
become employees of Atmos. Such employees' titles and job duties will be
determined by Atmos in its sole discretion. Except as otherwise set forth in
Section 4.7(b) hereof, Atmos agrees to retain all of such employees for a
period of one (1) year following the Effective Time at their approved rate of
pay as in effect immediately prior to such Effective Time; provided, however,
that Atmos shall have the right to terminate any such employee for cause;
provided, further, that no such employee who is a former officer of any of the
United Cities Entities shall be terminated for cause during such one (1)-year
period without having been given a reasonable opportunity to cure and correct,
to the satisfaction of Atmos, the deficiencies or other circumstances giving
rise to such cause. Following such one (1)-year period, such employees will be
employed by Atmos on an "at will" basis.
(b) At the Closing, Atmos will enter into an employment contract with each
of Messrs. James B. Ford and Thomas R. Blose, Jr. for a term of three (3)
years, which contracts shall be in substantially the forms of Exhibits C-1 and
C-2, respectively, to this Agreement. In addition, at the Closing, Atmos will
enter into an employment contract with Mr. Gene C. Koonce for a term of six
(6) months, which contract shall be in substantially the form of Exhibit C-3
to this Agreement.
(c) During the one (1)-year period described in Section 4.7(a) hereof and
except as otherwise provided in Section 3.13 hereof, any employee of a United
Cities Entity who continues his or her employment with Atmos as set forth in
such Section 4.7(a) and who was a participant in a Plan or Employee Benefit
Arrangement maintained by a United Cities Entity shall continue to participate
in such Plan or Employee Benefit Arrangement which shall be maintained by
Atmos during such one (1)-year period; provided, however, that, during such
period, Atmos shall have the right to merge or terminate any such Plan or
Employee Benefit Arrangement if, in its sole judgment, Atmos determines that
the same or better benefits are available to the employees covered thereunder
under a Plan or Employee Benefit Arrangement which provides the same or
similar benefits, which was maintained by Atmos before the Effective Time (and
continues to be so maintained) and under which immediate coverage for such
employees can be provided. Atmos will credit all employees of the United
Cities
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Entities who continue their employment with Atmos as set forth in Section
4.7(a) and (b) above for service performed as employees of the United Cities
Entities prior to the Effective Time for eligibility, participation and
vesting (but not benefit accrual) purposes in any employee plan or program
maintained by Atmos at or after the Effective Time for which such employees
are eligible (it being understood that employees who continue to be covered
under any Plan or Employee Benefit Arrangement previously maintained by any
United Cities Entity will not, during the period of such coverage, be eligible
to participate in any Plan or Employee Benefit Arrangement which provides the
same or similar benefits and which was maintained by Atmos before the
Effective Time). Certain key management employees as selected by Atmos will be
eligible to participate in Atmos' Annual Performance Bonus Plan for Key
Management Employees and Atmos' Mini-Med Plan. Subject to the foregoing, the
rights of any employees of the United Cities Entities at or after the
Effective Time shall be governed by the terms, as may be amended or modified
from time to time, of any Atmos Plan or Employee Benefit Arrangement in which
they participate. Those employees of the United Cities Entities, if any, who
become participants in one of Atmos' defined benefit pension plans will have
no rights in or claims against Atmos' pension or retirement funds, except with
respect to contributions made for their benefit subsequent to the Effective
Time.
(d) It is expressly understood by the parties hereto that, except as
otherwise provided in Section 4.7(c) hereof, Atmos assumes no responsibility,
and makes no commitment, for the maintenance and continuation, after the
Closing, of any Plan or Employee Benefit Arrangement previously adopted or
maintained by any United Cities Entity or any United Cities Group Member,
provided that a decision to discontinue any such Plan or Employee Benefit
Arrangement shall not be based solely on the status of the participants
thereunder as former employees of the United Cities Entities.
(e) Atmos shall provide coverage for each individual (other than Mr. Gene
Koonce) who was an active participant in the United Cities Gas and
Subsidiaries Supplemental Executive Retirement Plan immediately prior to the
date on which this Agreement was signed, under a "death benefit only" plan
providing the same "survivor benefit" as provided under, and defined in,
Section 4.4 of the United Cities and Subsidiaries Supplemental Executive
Retirement Plan; provided that United Cities shall have, prior to the
Effective Time, transferred ownership of any and all insurance policies
described in Section 7.12(b) of such Plan to Atmos.
(f) Nothing in this Section 4.7 or elsewhere in this Agreement is intended
to, or shall be interpreted to, limit any rights of any employees of any
United Cities Entity, or any obligation of the United Cities Entities or Atmos
pursuant to any collective bargaining agreement or the National Labor
Relations Act; it being expressly understood by the parties that any employees
of any United Cities Entities subject to any collective bargaining agreement
shall be entitled to the rights provided to such employees by this Section 4.7
to the extent permitted by the National Labor Relations Act.
Section 4.8 Declaration of Dividends. Atmos will take appropriate action, at
the first regularly scheduled meeting of Atmos' Board of Directors after the
Effective Time, to cause to be declared and paid, for a period of not less
than four (4) quarters, quarterly cash dividends at an indicated annual rate
of not less than $1.02 per share (subject to adjustment for any stock split,
stock dividend, combination of shares or other similar event), except to the
extent that the ability of Atmos' Board of Directors to declare, and Atmos'
ability to pay, such dividends are limited by applicable state statutory
requirements of the state or states in which Atmos is incorporated or by such
directors' fiduciary duties to Atmos and its shareholders, as such fiduciary
duties are determined by Atmos and its counsel in their sole discretion.
Section 4.9 Options. Following the consummation of the Merger, Atmos agrees
to continue in effect the United Cities Gas Company Long-Term Stock Plan of
1989, as amended. Persons holding options under such plan shall be allowed to
exercise their options for Atmos Stock at the exchange rate set forth in the
Plan of Merger. Persons holding stock appreciation rights under such plan
shall be allowed to exercise such rights based on the price of Atmos Stock
taking into account the exchange rate set forth in the Plan of Merger.
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Section 4.10 Indemnification. Atmos agrees that all rights to
indemnification and advancement of expenses existing in favor of the present
or former directors, officers, employees, fiduciaries and agents of the United
Cities Entities (collectively, the "Indemnified Parties") as provided in
United Cities' Articles of Incorporation or Bylaws as in effect as of the date
hereof with respect to matters occurring prior to the Effective Time shall
survive the Merger and shall continue in full force and effect for a period of
not less than the statutes of limitations applicable to such matters.
Section 4.11 Insurance. Through the Effective Time, Atmos shall maintain in
full force and effect all of the policies of insurance of the Atmos Entities
that were in effect on the date hereof or insurance comparable to the coverage
afforded by such policies.
Section 4.12 Cooperation in Preparation of Proxy Statement/Prospectus. Atmos
shall cooperate fully with United Cities and shall furnish such information
concerning Atmos as United Cities shall request in connection with the
preparation and filing with the SEC by United Cities of the Proxy
Statement/Prospectus in connection with the United Cities Shareholders
Meeting. In addition, Atmos shall obtain the consent of Ernst & Young LLP to
the inclusion of such audited financial statements of Atmos in the Proxy
Statement/Prospectus as may be necessary or desirable, as determined by Atmos.
Section 4.13 Delivery of Monthly Financials. Atmos shall deliver to United
Cities, as promptly as practicable following the end of each calendar month
after the date of this Agreement, its consolidated monthly financial
statements prepared in the ordinary course of its business.
ARTICLE 5
Mutual Covenants of Atmos and United Cities
Section 5.1 The Merger.
(a) Subject to the terms and conditions of this Agreement, Atmos and United
Cities agree to enter into a statutory merger under the applicable laws of the
States of Texas, Illinois and Virginia whereby United Cities will be merged
with and into Atmos, with Atmos as the surviving corporation (the "Merger");
and Atmos and United Cities hereby respectively agree that the terms and
conditions of such Merger, the mode of carrying the same into effect, the
manner of converting the shares of capital stock of United Cities into shares
of Atmos Stock, and other necessary or proper details and provisions relating
to such Merger shall be as contained in the form of Plan of Merger attached
hereto as Exhibit D (the "Plan of Merger"). Notwithstanding anything to the
contrary contained in this Agreement or the Plan of Merger, if any state
authority or commission requires that the survivor pursuant to the Merger be a
corporation incorporated under the laws of such state, each party agrees to
take all necessary actions to comply with such requirement and provide that
such survivor will be incorporated in such state, including, without
limitation, making any necessary amendments to the Plan of Merger, as
authorized by the respective Board of Directors of United Cities and Atmos by
approval of this Agreement.
(b) At any time before approval of this Agreement and the Plan of Merger by
the respective shareholders of Atmos and United Cities and prior to the
Closing Date, this Agreement and the Plan of Merger may be amended in writing
by Atmos and United Cities in accordance with the provisions of Section 7.3.
(c) The closing of the transactions contemplated hereby (the "Closing")
shall take place at 10:00 a.m., local time, within fifteen (15) business days
following the latest to occur of (i) the meeting of shareholders of Atmos held
pursuant to Section 4.2 of this Agreement, (ii) the meeting of shareholders of
United Cities held pursuant to Section 3.6 of this Agreement, (iii) the
expiration or termination of the waiting period (and any extension thereof)
applicable to the consummation of the Merger under the Hart-Scott-Rodino Act,
or (iv) the date all approvals contemplated by Section 6.1(c) of this
Agreement have been granted, and each of the other conditions set forth in
Article VI hereof have been satisfied, or at such other date and time as Atmos
and United Cities shall agree upon in writing (the "Closing Date"). The
Closing shall take place at the office of Locke Purnell Rain Harrell (A
Professional Corporation) at 2200 Ross Avenue, Suite 2200, Dallas, Texas 75201
or at such other place as Atmos and United Cities shall agree upon in writing.
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(d) The "Paying Agent" referred to in the Plan of Merger shall be The First
National Bank of Boston or such other party as Atmos and United Cities may
mutually agree.
Section 5.2 Execution, Filing, and Recording of Merger Documents. Subject to
the terms and conditions of this Agreement and upon approval and adoption of
the Plan of Merger by the respective shareholders of United Cities and Atmos
in accordance with the laws of Texas, Illinois and Virginia, as applicable,
relating to statutory mergers, Atmos and United Cities each agree to properly
execute and deliver the Plan of Merger in compliance with the laws of Texas,
Illinois and Virginia, as well as the requisite certificate(s) and articles of
merger in compliance with the laws of Texas, Illinois and Virginia, as
applicable, and to cause the requisite filing and recording of the
certificate(s) and articles of merger in accordance with the laws of the
States of Texas, Illinois and Virginia, as applicable, all with a view of
making the Merger effective at the Closing Date. The officers of United Cities
and Atmos that are responsible for the execution of the articles of merger may
determine a specific date for the Effective Time not later than fifteen (15)
days after the filing of all necessary articles of merger in the States of
Texas, Illinois and Virginia in lieu of the Effective Time specified in the
Plan of Merger and such officers may amend Section 3.01 of the Plan of Merger
accordingly.
Section 5.3 Notice of Certain Events. Each of the parties hereto shall give
prompt written notice to the other party of (a) the occurrence, or non-
occurrence, of any event, the occurrence or non-occurrence of which would be
likely to cause any representation or warranty of such party contained in this
Agreement to be untrue or inaccurate and (b) any failure of such party to
comply with or satisfy any cost, condition, or agreement to be complied with
or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 5.3 shall not limit or otherwise affect the
remedies available hereunder to the other party hereto.
Section 5.4 Expenses. Except as otherwise provided in this Section 5.4, all
costs and expenses incurred in connection with this Agreement, the Plan of
Merger, and the transactions contemplated hereby and thereby (including
without limitation any fees, commissions or expenses of the type referred to
in Sections 1.20 and 2.20 above) shall be paid by the party incurring such
expense. The SEC filing fee for registering the Atmos Stock on Form S-4 and
the expenses incurred in connection with printing and mailing the Proxy
Statement/Prospectus shall be shared equally by Atmos and United Cities.
Notwithstanding the foregoing, if
(a) this Agreement is terminated
(i) by United Cities, because of the failure of Atmos to satisfy the
conditions to closing set forth in Sections 6.1(a), 6.3(a), 6.3(b), or
6.3(c) or the failure of Atmos to obtain the opinion described in
Section 6.2(d) hereof; or
(ii) by Atmos, because of the failure of United Cities to satisfy the
conditions to closing set forth in Sections 6.1(a), 6.2(a), 6.2(b),
6.2(c), or 6.2(g) or the failure of United Cities to obtain the opinion
described in Section 6.3(d) hereof,
then the terminating party shall be reimbursed, by the party failing to
satisfy such condition(s), for its reasonable expenses (including
attorneys, accountants and investment bankers fees (as accrued as of the
date of termination)) incurred in connection with this Agreement and the
transactions contemplated hereby; and
(b) if this Agreement is terminated by United Cities under Section
7.1(k), by Atmos under Section 7.1(c), or by Atmos because United Cities'
shareholders have approved a Competing Transaction involving United Cities,
then United Cities will pay to Atmos a fee in immediately available funds
equal to $15,000,000 promptly, but in no event later than two (2) business
days, after such termination.
Section 5.5 Public Announcements. Atmos and United Cities shall consult with
one another before issuing any press release or otherwise making any public
statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except
as may be required by law, under Atmos' listing agreement with the NYSE or
under United Cities' listing agreement with Nasdaq.
Section 5.6 Further Action. Upon the terms and subject to the conditions
hereof, each of the parties hereto shall (a) promptly make its respective
filings, and thereafter make any other required submissions, and (b) use all
reasonable efforts to take, or cause to be taken, all appropriate action, and
to do or cause to be done,
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all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement and the Plan of Merger, including, without limitation, using
all reasonable efforts to obtain all Governmental Authorizations and all
consents of parties to contracts with Atmos and United Cities as are necessary
for the consummation of the transactions contemplated by this Agreement and
the Plan of Merger and to fulfill the conditions of the Merger. In case at any
time after the Effective Time any further action is necessary or desirable to
carry out the purposes of this Agreement, the parties to this Agreement shall
use all reasonable efforts to take all such necessary action.
ARTICLE 6
Conditions to Consummation of the Merger
Section 6.1 Conditions to Obligations of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) Shareholder Approvals. The issuance of the Atmos Stock to the
shareholders of United Cities shall have been approved by the requisite
vote of the shareholders of Atmos as required by the rules of the NYSE, and
the Merger shall have been approved by the requisite vote of the
shareholders of Atmos in accordance with the provisions of the Texas
Business Corporation Act and by the requisite vote of the shareholders of
United Cities in accordance with the provisions of the Illinois Business
Corporation Act, the Virginia Stock Corporation Act and Nasdaq.
(b) Securities Act Registration, Blue Sky Registration or Exemption and
NYSE Listing. The shares of Atmos Stock to be issued to United Cities'
shareholders pursuant to this Agreement and the Plan of Merger shall have
been registered with the SEC under the Securities Act by means of an
effective registration statement, shall have been registered under or shall
be exempt from registration under all applicable state securities or blue
sky laws, and shall have been approved for listing, upon official notice of
issuance, on the NYSE.
(c) FERC and Utility Commission Approvals. All necessary approvals of the
Federal Energy Regulatory Commission and the state public utility
commissions for which approval is required shall have been granted by final
order and all applicable appeal and waiting periods shall have expired and
such orders shall not contain any condition which, in the reasonable
judgment of Atmos, would result in a material adverse change in the
business, operations, properties, condition (financial or otherwise),
assets or liabilities of the United Cities Entities, taken as a whole, or
the Atmos Entities, taken as a whole.
(d) Hart-Scott-Rodino Act. The waiting period (and any extension thereof)
applicable to the consummation of the Merger under the Hart-Scott-Rodino
Act shall have expired or been terminated.
(e) Consents Obtained. All consents and waivers required to be obtained
for the authorization, execution, and delivery of this Agreement and the
consummation of the transactions contemplated hereby other than those
consents and waivers the failure of which to obtain would not have a
material adverse effect on Atmos or United Cities, as the case may be,
shall have been obtained, including required consents, waivers and releases
from each of Atmos' and United Cities' lenders and creditors and from
Woodward Marketing, L.L.C., in form and substance reasonably satisfactory
to Atmos and United Cities.
(f) Litigation. No action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency of
any federal, state, local, or foreign jurisdiction or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or
charge would (i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation,
(iii) materially affect adversely the right of Atmos to own the former
assets and to operate the former business of United Cities and the United
Cities Subsidiaries, or (iv) materially affect adversely the right of any
of the United Cities Entities to own its assets and to operate its business
(and no such injunction, judgment, order, decree, ruling, or charge shall
be in effect).
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(g) Pooling Letter. Atmos shall have received from Ernst & Young LLP a
written opinion dated the Closing Date, in form and substance satisfactory
to Atmos, stating that Ernst & Young LLP concurs in the accounting
treatment of the Merger as a pooling of interests.
(h) Comfort Letters.
(i) Immediately prior to the time that the Registration Statement on
Form S-4 becomes effective, Atmos and United Cities shall have received
from Ernst & Young LLP a letter dated such date, in form and substance
satisfactory to Atmos.
(ii) Immediately prior to the time that the Registration Statement on
Form S-4 becomes effective, Atmos and United Cities shall have received
from Arthur Andersen LLP a letter dated such date, in form and
substance satisfactory to Atmos.
(iii) Atmos and United Cities shall have received from Ernst & Young
LLP a letter, dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
subsection (i) of this Section 6.1(h), except that the specified date
referred to shall be a date not more than five (5) days prior to the
Closing Date.
(iv) Atmos and United Cities shall have received from Arthur Andersen
LLP a letter, dated as of the Closing Date, to the effect that they
reaffirm the statements made in the letter furnished pursuant to
subsection (ii) of this Section 6.1(h), except that the specified date
referred to shall be a date not more than five (5) days prior to the
Closing Date.
Section 6.2 Additional Conditions to Obligations of Atmos. The obligations
of Atmos to issue the Atmos Stock to United Cities' shareholders and to effect
the Merger are, at the option of Atmos, also subject to the satisfaction at or
prior to the Closing Date of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of United Cities contained in Sections 1.1, 1.2, 1.3, 1.4,
1.5(a), 1.5(b), 1.5(d), 1.6(a), 1.6(b), 1.9(a) (except with respect to the
second sentence of Section 1.9(a) as it relates to financial statements),
1.10, 1.14, 1.17, 1.18, 1.21, 1.22, 1.23, 1.24, 1.25 and 1.26 of this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Closing Date with the same force and effect
as if made at and as of the Closing Date, and (ii) all of the other
representations and warranties of United Cities contained in this Agreement
shall be true and correct as of the date of this Agreement and as of the
Closing Date with the same force and effect as if made at and as of the
Closing Date, except where the failure of such representation(s) or
warranty(ies) to be true and correct and would not have a Material (as
defined in Section 8.1(bb)) adverse effect on the United Cities Entities,
taken as a whole. Atmos shall have received a certificate signed by the
Chief Executive Officer and the Chief Financial Officer of United Cities
dated as of the Closing Date to the foregoing effect.
(b) Agreements and Covenants. United Cities shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it at or
prior to the Closing Date and Atmos shall have received a certificate
signed by the Chief Executive Officer of United Cities and dated as of the
Closing Date to that effect.
(c) Material Adverse Changes. Since the date of this Agreement, no
Material adverse change in the business, operations, properties, condition
(financial or otherwise), assets or liabilities of any of the United Cities
Entities shall have occurred; and Atmos shall not have discovered or become
aware of any fact, error, misstatement or omission materially adverse to
the business, operations, properties, condition (financial or otherwise),
assets or liabilities of any of the United Cities Entities that has not
been disclosed by United Cities to Atmos in the United Cities Disclosure
Schedule which would result in a Material adverse change.
(d) Opinion of Financial Advisor. The Board of Directors of Atmos shall
have received from Merrill Lynch, Pierce, Fenner & Smith Incorporated a
written opinion, dated as of the mailing date of the Proxy
Statement/Prospectus, in form and substance satisfactory to Atmos, to the
effect that the exchange ratio of shares of Atmos Stock for shares of
United Cities Stock in the Merger is fair to Atmos from a financial point
of view.
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(e) Opinion of Tax Counsel. Atmos shall have received from Locke Purnell
Rain Harrell (A Professional Corporation) a written opinion dated the
Closing Date, in form and substance satisfactory to Atmos, to the effect
that the Merger will constitute a tax-free reorganization pursuant to
Section 368(a)(1)(A) of the Code.
(f) Opinion of United Cities' Counsel. Atmos shall have received an
opinion of Chapman and Cutler, counsel to United Cities, dated the Closing
Date, regarding the United Cities Entities and the Merger, in form and
substance satisfactory to Atmos.
(g) Dissenting United Cities Shareholders. Written objections to the
Merger shall not have been made by the holders of ten (10%) percent or more
of the outstanding shares of the common stock of United Cities, pursuant to
the provisions of the Illinois Business Corporation Act or the Virginia
Stock Corporation Act, respecting rights of dissenting shareholders.
Section 6.3 Additional Conditions to Obligations of United Cities. The
obligations of United Cities to effect the Merger are, at the option of United
Cities, also subject to the satisfaction at or prior to the Closing Date of
the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Atmos contained in Sections 2.1, 2.2, 2.3, 2.4, 2.5(a),
2.5(b), 2.5(d), 2.6(a), 2.6(b), 2.9(a) (except with respect to the second
sentence of Section 2.9(a) as it relates to financial statements), 2.10,
2.14, 2.17, 2.18, 2.21, 2.22, 2.23, 2.24, 2.25 and 2.26 of this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date, and (ii) all of the other
representations and warranties of Atmos contained in this Agreement shall
be true and correct as of the date of this Agreement and as of the Closing
Date with the same force and effect as if made at and as of the Closing
Date, except where the failure of such representation(s) and warranty(ies)
to be true and correct would not have a Material (as defined in Section
8.1(cc)) adverse effect on the Atmos Entities taken as a whole. United
Cities shall have received a certificate signed by the Chief Operating
Officer and Chief Financial Officer of Atmos dated as of Closing Date to
the foregoing effect.
(b) Agreements and Covenants. Atmos shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Closing
Date and United Cities shall have received a certificate signed by the
Chief Operating Officer of Atmos and dated as of the Closing Date to that
effect.
(c) Material Adverse Changes. Since the date of this Agreement, no
Material adverse change in the business, operations, properties, condition
(financial or otherwise), assets or liabilities of any of the Atmos
Entities shall have occurred; and United Cities shall not have discovered
or become aware of any fact, error, misstatement or omission materially
adverse to the business, operations, properties, condition (financial or
otherwise), assets or liabilities of any of the Atmos Entities that has not
been disclosed by Atmos to United Cities in the Atmos Disclosure Schedule
which would result in a Material adverse change.
(d) Opinion of Financial Advisor. The Board of Directors of United Cities
shall have received from PaineWebber Incorporated a written opinion, dated
as of the mailing date of the Proxy Statement/ Prospectus, in form and
substance satisfactory to United Cities, to the effect that the exchange
ratio of shares of Atmos Stock for shares of United Cities Stock in the
Merger is fair to the shareholders of United Cities from a financial point
of view.
(e) Opinion of Tax Counsel. United Cities shall have received from
Chapman and Cutler a written opinion dated the Closing Date, in form and
substance satisfactory to United Cities, to the effect that the Merger will
constitute a tax-free reorganization pursuant to Section 368(a)(1)(A) of
the Code.
(f) Opinion of Atmos' Counsel. United Cities shall have received from
Locke Purnell Rain Harrell (A Professional Corporation) a written opinion
dated the Closing Date regarding the Atmos Entities and the Merger, in form
and substance satisfactory to United Cities.
(g) Employment Agreements. Atmos shall have executed employment contracts
with Messrs. James B. Ford, Thomas R. Blose, Jr. and Gene C. Koonce
substantially in the forms of Exhibits C-1, C-2 and C-3, respectively.
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ARTICLE 7
Termination, Amendment, and Waiver
Section 7.1 Termination. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
notwithstanding approval thereof by the shareholders of Atmos or United
Cities:
(a) by mutual written consent duly authorized by the Boards of Directors
of Atmos and United Cities;
(b) by Atmos or United Cities if the Merger shall not have been
consummated on or before March 31, 1997, or such later date as may be
agreed to in writing by the parties; provided, however, that the right to
terminate this Agreement under this Section 7.1(b) shall not be available
to any party whose willful failure to fulfill any material obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before such date;
(c) by Atmos if the Board of Directors of United Cities has, pursuant to
Section 3.11, taken a position recommending a Competing Transaction, or
whereby it fails to recommend the Merger, to the shareholders of United
Cities;
(d) by Atmos or United Cities if a federal or state court of competent
jurisdiction or a federal or state governmental regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and
such order, decree or ruling or other action shall have become final and
nonappealable; provided, that the party seeking to terminate this Agreement
pursuant to this Section 7.1(d) shall have used all reasonable efforts to
remove such injunction, order or decree;
(e) by Atmos if the shareholders of United Cities have not approved the
matters specified in Section 3.6 hereof at the vote taken thereon at the
meeting of shareholders of United Cities convened pursuant to Section 3.6
hereof or any adjournment thereof;
(f) by United Cities if the shareholders of Atmos have not approved the
matters specified in Section 4.2 hereof at the vote taken thereon at the
meeting of shareholders of Atmos convened pursuant to Section 4.2 hereof or
any adjournment thereof;
(g) by Atmos if there has occurred (i) a material breach by United Cities
of any of its representations or warranties contained in Sections 1.1, 1.2,
1.3, 1.4, 1.5(a), 1.5(b), 1.5(d), 1.6(a), 1.6(b), 1.9(a) (except with
respect to the second sentence of Section 1.9(a) as it relates to financial
statements), 1.10, 1.14, 1.17, 1.18, 1.21, 1.22, 1.23, 1.24, 1.25 or 1.26
of this Agreement or of any of the covenants or agreements, contained in
this Agreement or the Plan of Merger, or (ii) a Material (as defined in
Section 8.1(bb)) breach by United Cities of any of its other
representations or warranties contained in this Agreement or the Plan of
Merger, if the same has not been cured within twenty (20) days after
written notice of such breach has been given to United Cities by Atmos;
(h) by United Cities if there has occurred (i) a material breach by Atmos
of any of its representations or warranties contained in Sections 2.1, 2.2,
2.3, 2.4, 2.5(a), 2.5(b), 2.5(d), 2.6(a), 2.6(b), 2.9(a) (except with
respect to the second sentence of Section 2.9(a) as it relates to financial
statements), 2.10, 2.14, 2.17, 2.18, 2.21, 2.22, 2.23, 2.24, 2.25 and 2.26
of this Agreement or any of the covenants or agreements contained in this
Agreement or the Plan of Merger or (ii) a Material (as defined in Section
8.1(cc)) breach by Atmos of any of its other representations or warranties
contained in this Agreement or the Plan of Merger, if the same has not been
cured within twenty (20) days after written notice of such breach has been
given to Atmos to United Cities;
(i) by Atmos, prior to the expiration of the Initial Environmental
Inspection Period, in its sole discretion, because of (i) the failure of
United Cities and Atmos to agree upon a Scope for the Environmental Audit,
or (ii) the results of the preliminary review of information about the
Environmental Activities or Environmental Condition of United Cities are
not satisfactory to Atmos;
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(j) by Atmos, prior to the expiration of twenty (20) days from and after
a period of forty (40) days from the date of this Agreement, in its sole
discretion, in the event United Cities fails to terminate all liabilities
of United Cities under the United Cities and Subsidiaries Supplemental
Executive Retirement Plan for an aggregate amount of not more than
$5,100,000; provided, however, that United Cities shall not be required to
include in such amount in respect to United Cities' liability to Gene C.
Koonce under the United Cities Gas and Subsidiaries Supplemental Executive
Retirement Plan; or
(k) by United Cities, in the exercise of United Cities' Board of
Directors' fiduciary duties pursuant to Section 3.11 with respect to a
Competing Transaction.
Section 7.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, except as otherwise expressly provided for
in this Section 7.2, this Agreement shall forthwith become void and, except as
otherwise expressly provided for in this Section 7.2, there shall be no
liability on the part of any party hereto, provided, however, that nothing
herein shall relieve any party from liability for any intentional or willful
breach hereof, provided, further, that the obligations of the parties under
Section 5.4, the Confidentiality Agreement and the Standstill Agreement shall
remain in full force and effect.
Section 7.3 Amendment. This Agreement may be amended by mutual action taken
by or on behalf of the respective Boards of Directors of the parties hereto at
any time prior to the Closing Date; provided, however, that, after approval by
the shareholders of either party of the Merger, no amendment may be made which
would increase or decrease the amount or change the type of consideration into
which each share of United Cities Stock shall be converted upon consummation
of the Merger, and provided further that any amendments required by Section
5.1(a) do not require further approval of the respective Boards of Directors.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations
or other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if
set forth in an instrument in writing signed by the party or parties to be
bound thereby and shall be applicable only with respect to the particular
condition or provision as extended or waived and not to any other condition or
provision herein.
ARTICLE 8
Miscellaneous
Section 8.1 Definitions. For purposes of this Agreement, the following terms
used herein shall have the meanings set forth below:
(a)"Additional Assessment" has the meaning set forth in Section 3.4(b)
above.
(b)"Additional Environmental Investigation Period" has the meaning set
forth in Section 3.4(a) above.
(c)"Atmos SEC Reports" has the meaning set forth in Section 2.9(a) above.
(d)"Atmos Shareholders Meeting" means the special meeting of Atmos'
shareholders called for the purpose of considering and voting upon the
Merger and the issuance of Atmos Stock to United Cities' shareholders as
consideration for the Merger in accordance with and pursuant to the terms
and provisions of this Agreement.
(e)"Atmos Stock" has the meaning set forth in Section 2.3(a) above.
(f)"Closing" means the closing of the Merger as set forth in Section
5.1(c) of this Agreement.
(g)"Closing Date" means the date of the Closing as set forth in Section
5.1(c) of this Agreement.
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(h) "Competing Transaction" means any of the following (other than the
transactions contemplated by this Agreement) involving United Cities or any
United Cities Entity: (i) any merger, consolidation, share exchange,
business combination or similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of twenty percent
(20%) or more of the assets of the United Cities Entities; (iii) any tender
offer or exchange offer for twenty percent (20%) or more of the outstanding
shares of capital stock of United Cities; (iv) any person acquiring
beneficial ownership of, or any group (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) being formed which beneficially owns or has the right to
acquire beneficial ownership of, twenty percent (20%) of more of the
outstanding shares of capital stock of United Cities; or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing; provided, that this shall
not apply to transactions permitted under Section 3.1(e).
(i) "Confidentiality Agreement" means the Confidentiality Agreement dated
July 5, 1996 by and between United Cities and Atmos .
(j) "Code" means the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder.
(k) "Effective Time" means the effective time of the Merger, determined
in accordance with the Plan of Merger.
(l) "Employee Benefit Arrangement" means any plan, agreement, or
arrangement which is not an employee benefit plan within the meaning of
Section 3(3) of ERISA but which provides benefits to any one or more of the
officers or other employees of any United Cities Entity or Atmos Entity, as
the case may be, such as a bonus, incentive, stock purchase, stock option,
or stock appreciation rights plan, or any employment or consulting
agreement.
(m) "Environmental Activity" means any storage, holding, manufacture,
emission, discharge, generation, processing, treatment, abatement, removal,
disposition, handling, transportation, or disposal, or any actual,
proposed, or threatened release of any Hazardous Materials from, under,
into, or on any Subject Property or otherwise relating to any Subject
Property or the Use of any Subject Property, including but not limited to
(i) the migration or emanation of Hazardous Materials from the Subject
Property onto or into the environment beyond the physical boundaries of the
Subject Property; (ii) the off-site disposal of Hazardous Materials from
any Subject Property; and (iii) including but not limited to activity
occurring in connection with ambient air, surface, and subsurface soil
conditions, and all surface and subsurface waters.
(n) "Environmental Agency" means any federal, state, or local entity or
agency with jurisdiction over Environmental Requirements.
(o) "Environmental Audit" has the meaning set forth in Section 3.4(a)
above.
(p) "Environmental Condition" means (i) the presence or existence in, on,
at, or under the Subject Property of any Hazardous Materials, underground
or above-ground storage tanks, wells, covered-over surface impoundments or
similar areas, any "facility," as that term is defined under applicable
Environmental Requirements, or wetlands and (ii) the presence or existence
in, on, at, or under the environment beyond the physical boundaries of the
Subject Property of any Hazardous Materials, which migrated or emanated
from the Subject Property.
(q) "Environmental Costs" means any of the following which arise in any
manner in connection with Environmental Activity or an Environmental
Condition, regardless of whether based in contract, tort, implied or
express warranty, strict liability, Environmental Requirement, or
otherwise: all liabilities, losses, judgments, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including,
without limitation, the reasonable fees and disbursements of legal counsel
and environmental consultants, all costs related to the performance of any
required or necessary assessments, investigations, remediation, response,
containment, closure, restoration, repair, cleanup, or detoxification of
any Subject Property or any part thereof, the preparation and
implementation of any maintenance, monitoring, closure, remediation,
abatement, or other plans required by an Environmental Agency or by
Environmental Requirements and any other costs recovered or recoverable
under any Environmental Requirement), fines,
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penalties, or monetary sanctions. Environmental Costs shall include without
limitation: (i) damages for personal injury or death, or injury to property
or to natural resources; (ii) damage to the Subject Property or damage
resulting from the loss of the Use of all or any part of the Subject
Property, including but not limited to business loss; (iii) the cost of any
demolition, rebuilding, or repair of the Subject Property or other
property, required by Environmental Requirements or necessary to restore
the Subject Property or such other property to its condition prior to
damage caused by an Environmental Condition, Environmental Activity, or by
the remediation of an Environmental Activity, or by the remediation of an
Environmental Condition or Environmental Activity; and (iv) diminution in
value of the Subject Property or other property.
(r) "Environmental Requirements" means all laws, ordinances, statutes,
codes, rules, regulations, agreements, judgments, orders, and decrees now
or hereafter enacted, promulgated, or amended, of the United States, the
states, the counties, the cities, or any other political subdivisions in
which a Subject Property is located, and any other political subdivision,
agency, or instrumentality exercising jurisdiction over any of the United
Cities Entities, any Subject Property, or the Use of the Subject Property,
relating to pollution, the protection or regulation of human health,
natural resources, or the environment, or the emission, discharge, release
or threatened release of pollutants, contaminants, chemicals, or
industrial, toxic, or hazardous substances or waste or Hazardous Materials
into the environment (including, without limitation, ambient air, surface
water, ground water, or land or soil).
(s) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(t) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(u) "Governmental Authorizations" has the meaning set forth in Section
1.1(a) above.
(v) "Group Member" means any member of any "affiliated service group," as
defined in Section 414(m) of the Code, that includes any United Cities
Entity or Atmos Entity, as the case may be, any member of any "controlled
group of corporations," as defined by Section 1563 of the Code, that
includes any United Cities Entity or Atmos Entity, as the case may be, or
any member of any group of "trades or businesses under common control," as
defined in Section 414(c) of the Code, that includes any United Cities
Entity or Atmos Entity, as the case may be.
(w) "Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
(x) "Hazardous Material" means any substance which is or contains (i) any
"hazardous substance" as now or hereafter defined in (S) 101(14) of the
Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA") (42 U.S.C. (S) 9601 et seq.) or any regulations
promulgated under CERCLA; (ii) any "hazardous waste" as now or hereafter
defined in the Resource Conservation and Recovery Act (42 U.S.C. (S) 6901
et seq.) ("RCRA") or regulations promulgated under RCRA; (iii) any
substance regulated by the Toxic Substances Control Act (15 U.S.C. (S) 2601
et seq.); (iv) gasoline, diesel fuel, or other petroleum hydrocarbons; (v)
asbestos and asbestos containing materials, in any form, whether friable or
non-friable; (vi) polychlorinated biphenyls; or (vii) radon gas; and any
additional substances or materials which are now or hereafter classified or
considered to be hazardous or toxic under Environmental Requirements or the
common law, or any other applicable laws relating to the Subject Property.
Hazardous Materials shall include, without limitation, any substance, the
presence of which on any Subject Property (A) requires reporting,
investigation, or remediation under Environmental Requirements; (B) causes
or threatens to cause a nuisance on any Subject Property or adjacent
property or poses or threatens to pose a hazard to the health or safety of
persons on any Subject Property or adjacent property; or (C) which, if it
emanated or migrated from the Subject Property, could constitute a
trespass.
(y) "Indemnified Parties" has the meaning set forth in Section 4.10
above.
(z) "Initial Environmental Inspection Period" has the meaning set forth
in Section 3.4(a) above.
(aa) "IRS" means the Internal Revenue Service.
(bb) "Material" with respect to United Cities means that the effect of
any untrue statement, misrepresentation or omission of United Cities
contained in this Agreement on, or of any breach or failure
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to perform by United Cities of any of its covenants, warranties, agreements
or obligations contained in this Agreement on, or the occurrence of any
event affecting, the business, operations, properties, conditions
(financial or otherwise), assets or liabilities of United Cities that
result, individually or in the aggregate, in an reduction on a pro forma
basis of $2,000,000 or more in the net profit of United Cities on an
annualized basis for a twelve (12)-month period, or a reduction on a pro
forma basis of $12,500,000 or more in the stockholders equity of United
Cities as of the most recent audited balance sheet; provided, however, that
no amounts shall be included in determining the foregoing amounts which
arise with respect to any former manufactured gas plant site or the Kansas
Department of Health and Environment mercury meter proceeding, except to
the extent that such amounts arise from events or occurrences arising after
the Initial Environmental Inspection Period; provided, further, that for
purposes of calculating any such effect on the net profit of United Cities,
there shall not be taken into account any item that would reduce such net
profit on a pro forma basis by less than $5,000. In the event of any
dispute between the parties as to the determination of whether any such
matter is Material, the parties agree to submit such dispute to Arthur
Andersen LLP ("AA") and Ernst & Young LLP ("EY") for resolution on a joint
basis. In the event AA and EY are unable to resolve such dispute within ten
(10) days, then the parties agree to submit the dispute to Coopers &
Lybrand LLC whose determination shall be final and binding on the parties.
(cc)"Material" with respect to Atmos means that the effect of any untrue
statement, misrepresentation or omission of Atmos contained in this
Agreement on, or of any breach or failure to perform by Atmos of any of its
covenants, warranties, agreements or obligations contained in this
Agreement on, or the occurrence of any event affecting, the business,
operations, properties, conditions (financial or otherwise), assets or
liabilities of Atmos that result, individually or in the aggregate, in an
reduction on a pro forma basis of $2,000,000 or more in the net profit of
Atmos on an annualized basis for a twelve (12)-month period, or a reduction
on a pro forma basis of $12,500,000 or more in the stockholders equity of
Atmos as of the most recent audited balance sheet; provided, however, that
for purposes of calculating any such effect on the net profit of Atmos,
there shall not be taken into account any item that would reduce such net
profit on a pro forma basis by less than $5,000. In the event of any
dispute between the parties as to the determination of whether any such
matter is Material, the parties agree to submit such dispute to Arthur
Andersen LLP ("AA") and Ernst & Young LLP ("EY") for resolution on a joint
basis. In the event AA and EY are unable to resolve such dispute within ten
(10) days, then the parties agree to submit the dispute to Coopers &
Lybrand LLC whose determination shall be final and binding on the parties.
(dd)"Merger" and "Plan of Merger" have the meanings set forth in Section
5.1(a) above.
(ee)"Nasdaq" means the Nasdaq National Market.
(ff)"NYSE" means the New York Stock Exchange.
(hh)"PBGC" means the Pension Benefit Guaranty Corporation.
(ii)"Plan" means at any time any employee benefit plan as defined in
Section 3(3) of ERISA (i) which is either (1) maintained by a United Cities
Entity (or an Atmos Entity, as the case may be) or any Group Member or (2)
maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and (ii)
to which any of the United Cities Entities (or Atmos Entities, as the case
may be) or any Group Member is then making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
(jj)"Proxy Statement/Prospectus" means the joint proxy which constitutes
(i) a proxy statement to be delivered to Atmos' shareholders in connection
with the Atmos Shareholders Meeting, (ii) a registration statement on Form
S-4 to be filed by Atmos with the SEC to register the Atmos Stock that will
be received by the shareholders of United Cities in the Merger, and (iii) a
joint proxy statement and prospectus to be delivered to United Cities'
shareholders in connection with the Atmos Stock and the United Cities'
Shareholders Meeting with respect to the Merger.
(kk)"PUHCA" means the Public Utility Holding Company Act of 1935, as
amended.
(ll)"Sampling" has the meaning set forth in Section 3.4(a) above.
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(mm)"Scope" has the meaning set forth in Section 3.4(a) above.
(nn)"SEC" means the Securities and Exchange Commission.
(oo)"Securities Act" means the Securities Act of 1933, as amended.
(pp)"Standstill Agreement" means the Standstill Agreement dated as of
July 13, 1996 by and between United Cities and Atmos.
(qq)"Subject Property" means the real property currently or formerly Used
by any of the United Cities Entities or any of their current or former
subsidiaries and all improvements, fixtures, equipment, and personal
property now or hereafter located on such real property.
(rr)"Taxes" means all taxes, charges, fees, levies, imports, or other
assessments by any federal, state, local, or foreign taxing authority,
including, but not limited to, income, excise, property, sales, transfer,
employment, payroll, franchise, and withholding taxes, and any interest,
penalties, or additions attributable thereto, imposed thereon, or with
respect thereof.
(ss)"Tax Returns" means any return, report, information return, or other
document (including any related or supporting information) filed or
required to be filed with any federal, state, local, or foreign taxing
authority in connection with the determination, assessment, or collection
of any Tax.
(tt)"United Cities Pension Plan" means the Retirement Plan for Employees
of United Cities.
(uu)"United Cities SEC Reports" has the meaning set forth in Section
1.9(a) above.
(vv)"United Cities Shareholders Meeting" means the special meeting of
United Cities' shareholders called for the purpose of considering and
voting upon the Merger in accordance with and pursuant to the terms and
provisions of this Agreement.
(ww)"Use" means use, ownership, tenancy, development, construction,
maintenance, management, operation, or occupancy and when referring to Use
by United Cities shall also be deemed to include Use by the United Cities
Subsidiaries or any other current or former subsidiaries of any of the
United Cities Entities.
Section 8.2 Non-Survival of Representations, Warranties, and Agreements. The
representations, warranties, and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Section 7.1, as the case may be, except that the agreements set forth in
Sections 4.7, 4.8, 4.9, 4.10 and 5.4 shall survive the Merger or the
termination of this Agreement.
Section 8.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly
given or made as of the date delivered or mailed if delivered personally or by
facsimile or mailed by registered or certified mail (postage prepaid, return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to Atmos:
Atmos Energy Corporation
P.O. Box 650205
Dallas, Texas 75265-0205
Attention: Mr. Robert F. Stephens
With a copy to:
Locke Purnell Rain Harrell (A Professional Corporation)
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201-6776
Attention: Mr. Dan Busbee
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(b) If to United Cities:
United Cities Gas Company
5300 Maryland Way
Brentwood, Tennessee 37207
Attention: Mr. James B. Ford
With a copy to:
Chapman and Cutler
111 West Monroe Street
Chicago, Illinois 60603
Attention: Mr. Terence O'Meara
Section 8.4 Assignment. This Agreement is not assignable by any of the
parties hereto.
Section 8.5 Severability. If any term or other provision of this Agreement
is invalid, illegal, or incapable of being enforced by any rule of law or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
Section 8.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any right, benefit, or remedy of any nature whatsoever under or by
reason of this Agreement other than officers, directors and employees of
United Cities who are third party beneficiaries pursuant to Sections 4.7, 4.9
and 4.10.
Section 8.7 Entire Agreement. This Agreement constitutes the entire
agreement and supersedes all prior agreements and undertakings (other than the
Confidentiality Agreement and the Standstill Agreement, both between Atmos and
United Cities, which shall survive in accordance with their respective terms),
both written and oral, between the parties, with respect to the subject matter
hereof and is not intended to confer upon any other person any rights or
remedies hereunder.
Section 8.8 Specific Performance. The parties hereto agree that, if for any
reason any party hereto shall have failed to perform its obligations under
this Agreement, then the other party hereto seeking to enforce this Agreement
against such non-performing party shall be entitled to specific performance
and injunctive and other equitable relief, and the parties hereto further
agree to waive any requirement for the securing or posting of any bond in
connection with the obtaining of any such injunctive or other equitable
relief. This provision is without prejudice to any other rights that any party
hereto may have against the other party hereto for any willful failure to
perform its obligations under this Agreement.
Section 8.9 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas; provided,
however, that all provisions of this Agreement relating to (a) the rights,
duties and conduct of Board of Directors of United Cities with respect to this
Agreement and the transactions hereby, pursuant to Sections 3.2 and 3.11
hereof and (b) whether Atmos shall be required to be an Illinois corporation
as the survivor under Merger, shall be governed by, and construed in
accordance with the laws of the State of Illinois.
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Section 8.10 Construction; Headings. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
Section 8.11 Incorporation of Exhibits. The Exhibits identified in this
Agreement are incorporated herein by reference and made a part hereof for all
purposes.
Section 8.12 Counterparts. This Agreement may be executed in counterparts,
each of which will be an original, but all of which together will constitute
one and the same agreement.
IN WITNESS WHEREOF, Atmos and United Cities have executed this Agreement and
Plan of Reorganization on the date first written above by their respective
officers thereunto duly authorized.
Atmos Energy Corporation
/s/ Robert F. Stephens
By: _________________________________
Robert F. Stephens
President and Chief Operating
Officer
United Cities Gas Company
/s/ Gene C. Koonce
By: _________________________________
Gene C. Koonce
President and Chief Executive
Officer
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EXHIBIT D
PLAN OF MERGER
This PLAN OF MERGER (this "Plan") by and between ATMOS ENERGY CORPORATION, a
Texas corporation ("Atmos"), and UNITED CITIES GAS COMPANY, an Illinois and
Virginia corporation ("United Cities"). Pursuant to this Plan, United Cities
shall be merged with and into Atmos, with Atmos as the surviving corporation
(the "Merger"), and the outstanding capital stock of United Cities shall be
converted into the right to receive shares of capital stock of Atmos.
W I T N E S S E T H:
WHEREAS, Atmos is a corporation duly organized and existing under the laws
of the State of Texas, and United Cities is a corporation duly organized and
existing under the laws of the States of Illinois and Virginia;
WHEREAS, Atmos and United Cities have entered into an Agreement and Plan of
Reorganization dated July 19, 1996, as amended by Amendment No. 1 to Agreement
and Plan of Reorganization dated October 3, 1996 (the "Reorganization
Agreement"), which contemplates the merger of United Cities with and into
Atmos, with Atmos as the surviving corporation as provided in this Plan; and
WHEREAS, the respective Boards of Directors of Atmos and United Cities have
duly authorized the execution of this Plan and have directed that the Merger
be submitted to their respective shareholders for a vote in accordance with
the requirements of the Texas Business Corporation Act, the Illinois Business
Corporation Act, and the Virginia Stock Corporation Act, the Boards of
Directors and shareholders of Atmos and United Cities have approved the
Merger, and the Board of Directors and shareholders of Atmos have authorized
the issuance of shares of the common stock, no par value, of Atmos (the "Atmos
Stock") in connection with the Merger;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Merger of United Cities into Atmos
Section 1.01 The Merger. In accordance with the Texas Business Corporation
Act, the Illinois Business Corporation Act, and the Virginia Stock Corporation
Act, United Cities shall be merged with and into Atmos at the effective time
of the Merger (the "Effective Time"). Following the Merger, the separate
corporate existence of United Cities shall cease and Atmos shall be the
surviving corporation, organized under the laws of the State of Texas and the
Commonwealth of Virginia (the "Surviving Corporation").
Section 1.02 Effects of the Merger.
(a) The Merger shall have the effects set forth in the applicable provisions
of the Texas Business Corporation Act, the Illinois Business Corporation Act,
and the Virginia Stock Corporation Act. Without limiting the generality of the
foregoing sentence, and subject thereto, at the Effective Time, by operation
of law, all of the property, rights, privileges, powers and franchises of
United Cities and Atmos shall vest in the Surviving Corporation, and all
debts, liabilities and obligations of United Cities and Atmos shall be assumed
by the Surviving Corporation and shall become the debts, liabilities and
obligations of the Surviving Corporation.
(b) If, at any time after the Merger, the Surviving Corporation shall deem
it necessary to obtain further assignments or documents to vest, perfect,
confirm or record in the Surviving Corporation title to any property or rights
of United Cities acquired as a result of the Merger, United Cities hereby
authorizes the officers and directors of the Surviving Corporation or its
successors to execute and deliver on behalf of and in the name of United
Cities all such proper deeds, assignments and other instruments and to do all
things necessary and proper to vest, perfect, confirm or record title to such
property or rights in the Surviving Corporation or its successor.
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Section 1.03 Articles of Incorporation; Bylaws.
(a) The Restated Articles of Incorporation of Atmos, as in effect
immediately prior to the Effective Time, shall be amended as provided herein,
and such Restated Articles of Incorporation, as so amended, shall be the
Articles of Incorporation of the Surviving Corporation, without any other
modification or amendment until thereafter amended as provided by law. A copy
of the Restated Articles of Incorporation of Atmos as amended hereby is
attached hereto as Exhibit A.
(b) The text of Article One, Article Two and Article Three of the Restated
Articles of Incorporation of Atmos shall be amended and restated in their
entirety to read as follows:
"ARTICLE ONE
Atmos Energy Corporation, pursuant to the provisions of
Article 4.07 of the Texas Business Corporation Act, adopted
Restated Articles of Incorporation, which accurately copied
the Articles of Incorporation and all amendments thereto that
were in effect to date and such Restated Articles of
Incorporation contained no change in any provision thereof.
ARTICLE TWO
Such Restated Articles of Incorporation were adopted by
resolution of the board of directors of the corporation on the
8th day of November, 1989.
ARTICLE THREE
The Restated Articles of Incorporation have been further
amended pursuant to that certain Plan of Merger by and between
Atmos Energy Corporation and United Cities Gas Company, an
Illinois and Virginia corporation. The Articles of
Incorporation and all amendments and supplements thereto as
superseded by the Restated Articles of Incorporation and as
amended pursuant to the Plan of Merger are as follows:"
(c) The text of Article II of the Restated Articles of Incorporation of
Atmos shall be amended and restated in its entirety to read as follows:
"ARTICLE II.
The purposes for which the Corporation is organized are the
transaction of any or all lawful business for which
corporations may be incorporated under the Texas Business
Corporation Act, including, but not limited to, the
transportation and distribution of natural gas by pipeline as
a public utility, except that with respect to the Commonwealth
of Virginia, the Corporation may only conduct such business as
is permitted to be conducted by a public service company
engaged in the transportation and distribution of natural gas
by pipeline."
(d) The text of Article III of the Restated Articles of Incorporation of
Atmos shall be amended and restated in its entirety to read as follows:
"ARTICLE III.
The Corporation is incorporated in the State of Texas and
the Commonwealth of Virginia. The post office address of the
registered office of this Corporation in the State of Texas is
Three Lincoln Centre, Suite 1800, 5430 LBJ Freeway, Dallas,
Texas 75240, and the registered agent for service of this
Corporation at the same address is Glen A. Blanscet. The post
office address of the registered office of this Corporation in
the Commonwealth of Virginia is Riverfront Plaza, East Tower,
951 East Byrd Street, Richmond, Virginia 23219-4074, and the
registered agent for service of this Corporation at the same
address is Allen C. Goolsby, III, such registered agent being
a resident of the Commonwealth of Virginia and a member of the
Virginia State Bar."
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(e) The text of Article VI of the Restated Articles of Incorporation of Atmos
shall be amended and restated in its entirety to read as follows:
"ARTICLE VI.
1. Number of Directors. The number of directors constituting
the present board of directors is fifteen (15); however,
thereafter the number of directors constituting the Board of
Directors shall be fixed by the Bylaws of the Corporation. No
director shall be removed during his term of office except for
cause and by the affirmative vote of the holders of seventy-
five percent (75%) of the shares then entitled to vote at an
election of directors. The names and addresses of the persons
who are to serve as directors until the next annual meeting of
the shareholders or until their successors are duly elected
and qualified are as follows:
NAME ADDRESS
---- -------
Travis W. Bain II............................. 2001 Coit Road
Suite 130
Plano, TX 75075
Dan Busbee.................................... 2200 Ross Avenue
Suite 2200
Dallas, TX 75201
Richard W. Cardin............................. 107 Sheffield Court
Nashville, TN 37215
Thomas J. Garland............................. Tusculum College
McCormick Hall, 1st Floor
Greeneville, TN 37743
Gene C. Koonce................................ 5300 Maryland Way
Brentwood, TN 37027
Vincent J. Lewis.............................. Meadows Office Complex
301 Route #17 North
Rutherford, NJ 07070
Thomas C. Meredith............................ Western Kentucky University
Bowling Green, KY 42101
Phillip E. Nichol............................. 301 Commerce
Suite 2800
Ft. Worth, TX 76102
John W. Norris, Jr. .......................... P. O. Box 799900
Dallas, TX 75379
James F. Purser............................... Three Lincoln Centre
Suite 1800
5430 LBJ Freeway
Dallas, TX 75240
Carl S. Quinn................................. 14 East 75th Street, #8B
New York, NY 10021
Lee E. Schlessman............................. 1301 Pennsylvania Street
Penn Center, Suite 800
Denver, CO 80203
Robert F. Stephens............................ Three Lincoln Centre
Suite 1800
5430 LBJ Freeway
Dallas, TX 75240
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NAME ADDRESS
---- -------
Charles K. Vaughan................................... Three Lincoln Centre
Suite 1800
5430 LBJ Freeway
Dallas, TX 75240
Richard Ware II...................................... Plaza One/Box One
Amarillo, TX 79105
2. Election and Term. The directors shall be divided into
three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the
entire Board of Directors. At each annual meeting of
shareholders, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-
year term. Directors shall be elected by a majority vote of
the shares of the Common Stock entitled to vote in the
election of directors and represented in person or by proxy at
a meeting of shareholders at which a quorum is present. If the
number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number
of directors in each class as nearly equal as possible, and
any additional director of any class elected by the
shareholders to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide
with the remaining term of that class, but in no case will a
decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the
annual meeting for the year in which his term expires and
until his successor shall be duly elected and qualified,
subject, however, to prior death, resignation, retirement,
disqualification or removal from office."
(f) The text of Subsection 2.01 of Article VII of the Restated Articles of
Incorporation of Atmos shall be amended and restated in its entirety as
follows:
"2.01 Subject to the provisions of law, including the Texas
Business Corporation Act and the Virginia Stock Corporation
Act and to the conditions set forth in any resolution of the
Board of Directors of the Corporation, such dividends (payable
in cash, stock or otherwise) as may be determined by the Board
of Directors may be declared and paid on the Common Stock from
time to time out of any funds legally available therefor."
(g) The text of Article X of the Restated Articles of Incorporation of Atmos
shall be amended and restated in its entirety as follows:
"ARTICLE X.
No director of the Corporation shall be personally liable to
the Corporation or its shareholders for monetary damages for
an act or omission in such director's capacity as a director,
except for liability for (i) a breach of the director's duty
of loyalty to the Corporation or its shareholders; (ii) an act
or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law; (iii) a
transaction from which the director received an improper
benefit, whether or not the benefit resulted from an action
taken within the scope of the director's office; (iv) an act
or omission for which the liability of a director is expressly
provided by statute; or (v) an act related to an unlawful
stock repurchase or payment of a dividend. If the laws of the
State of Texas or the Commonwealth of Virginia are hereafter
amended to authorize corporate action further eliminating or
limiting the personal liability of a director of the
Corporation, then the liability of a director of the
Corporation shall thereupon automatically be eliminated or
limited to the fullest extent permitted by the laws of the
State of Texas and the
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Commonwealth of Virginia. Any repeal or modification of this
Article X by the shareholders of the Corporation shall not
adversely affect any right or protection of a director
existing at the time of such repeal or modification with
respect to such events or circumstances occurring or existing
prior to such time."
(h) The Bylaws of Atmos, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation, without any
modification or amendment until thereafter amended as provided by law.
Section 1.04 Directors and Officers.
(a) At the Effective Time, the number of directors of the Surviving
Corporation shall be fifteen (15), and thereafter shall be set in the manner
provided in the Bylaws of the Surviving Corporation. The directors of the
Surviving Corporation shall be the eleven (11) directors of Atmos in office at
and as of the Effective Time and the following four (4) former directors of
United Cities: Messrs. Gene C. Koonce, Vincent J. Lewis, Thomas J. Garland and
Richard W. Cardin. Each of the Atmos directors in office prior to the
Effective Time shall continue to serve in the class and for the term that he
was serving at and as of the Effective Time, and the following directors shall
serve in the classes and for the terms indicated: Mr. Koonce (Class I, with a
term expiring in 1999); Mr. Lewis (Class I, with a term expiring in 1999); Mr.
Cardin (Class II, with a term expiring in 1997); and Mr. Garland (Class III,
with a term expiring in 1998). All of such directors shall remain in office
until their respective successors are duly elected or appointed and qualified.
(b) The officers of Atmos in office at and as of the Effective Time shall
remain the officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
ARTICLE II
Conversion and Exchange of Shares
Section 2.01 Conversion of Shares. (a) At and as of the Effective Time, each
outstanding share of the common stock of United Cities (the "United Cities
Stock") automatically shall become and be converted into the right to receive
one (1) share of Atmos Stock (as the same may be adjusted in accordance with
the terms hereof). The exchange ratio set forth in the immediately preceding
sentence shall be appropriately and proportionately adjusted in the event of
any stock dividend on, or stock split or stock combination of, or any other
like change in the Atmos Stock or the United Cities Stock based on a record
date occurring during the period from July 19, 1996 until immediately prior to
the Effective Time.
(b) At and as of the Effective Time, each share of the United Cities Stock
then held in the treasury of United Cities, if any, shall, by virtue of the
Merger and without any action on the part of the holder thereof, be cancelled
without payment of any consideration therefor and without any conversion
thereof.
(c) No fraction of a share of Atmos Stock will be issuable upon the
conversion of shares of United Cities Stock in the Merger. Instead, each
shareholder of United Cities who but for this provision would be entitled to a
fractional share of Atmos Stock shall, upon surrender to Atmos' Paying Agent
(as hereinafter defined) of his certificate or certificates formerly
representing shares of United Cities Stock (each, an "Old Certificate"),
receive in lieu of such fractional share, and without interest, a cash amount
determined by multiplying such fraction by the average of the closing sale
prices for a share of Atmos Stock, as reported on the NYSE, for the five (5)
business days prior to the date on which the Effective Time shall occur.
Section 2.02 Exchange of Certificates. (a) Following the Effective Time, the
shareholders of United Cities shall deliver to the Paying Agent their Old
Certificates. Upon surrender to the Paying Agent of outstanding Old
Certificates, the holder of such Old Certificate or Old Certificates shall
receive in exchange therefor a certificate (a "New Certificate") representing
whole shares of the Atmos Stock (the "Atmos Shares") and cash in lieu of
fractional shares in accordance with the provisions of Sections 2.01(a) and
2.01(c) of this Plan. Until so surrendered and exchanged, each Old Certificate
shall be deemed at and after the Effective Time to represent
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only the right to receive upon such surrender a New Certificate representing
Atmos Shares and cash in lieu of fractional shares without any interest
thereon. All rights to receive the Atmos Shares into which the shares of
United Cities Stock are converted, and cash in lieu of fractional shares,
pursuant to this Plan shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such United Cities Stock.
(b) The New Certificates representing the Atmos Shares to be issued in
connection with the Merger shall in each case be issued to the person in whose
name the surrendered Old Certificate or Old Certificates is or are registered.
A restrictive legend shall be placed on the New Certificates representing
those Atmos Shares issued to persons who (i) were affiliates of United Cities
prior to the Merger, and/or (ii) become affiliates of Atmos after the Merger,
and a notation shall be made in the appropriate records of Atmos, indicating
that the shares represented thereby are subject to certain restrictions on
transfer.
(c) At the Effective Time, the stock transfer books of United Cities shall
be closed, and there shall be no further registration or transfers of shares
of United Cities Stock thereafter in the records of United Cities.
(d) Unless and until an Old Certificate shall be surrendered to the Paying
Agent as set forth herein, the holder of such Old Certificate shall not
receive any dividends or other distributions payable to record holders of the
Atmos Stock. Upon and after such surrender, there shall be paid (without
interest) to the record holder of the New Certificate issued and exchanged for
such Old Certificate, the amount of any such dividend or other distribution
(the record date for the payment of which was after the Effective Time) not
previously paid to such holder. Holders of New Certificates who shall have
surrendered their Old Certificates prior to any dividend record date will
receive their dividends on the corresponding payment date.
(e) The Atmos Shares issuable in the Merger are hereinafter called the
"Merger Consideration." Immediately following the Effective Time, Atmos shall
deposit or cause to be deposited in trust with a bank or trust company to be
designated by Atmos (the "Paying Agent"), as agent for the holders of the Old
Certificates, the certificates representing the Atmos Shares that constitute
the Merger Consideration. As soon as practicable after the Effective Time, the
Paying Agent shall cause to be mailed, and shall make available at the offices
of the Paying Agent, to each person entitled to receive the Merger
Consideration, a form of a letter of transmittal and instructions for use in
effecting the surrender for payment of the Old Certificates which, immediately
prior to the Effective Time, represented shares of United Cities Stock. Upon
surrender to the Paying Agent of such Old Certificates, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the Paying Agent shall promptly deliver the Merger
Consideration to the persons entitled thereto, less any amount required to be
withheld under applicable federal income tax regulations. If payment is to be
made to a person other than the registered holder of the Old Certificate
surrendered, it shall be a condition of such payment that the Old Certificate
so surrendered shall be properly endorsed or otherwise be in proper form for
transfer and that the person requesting such payment shall pay any transfer
taxes required by reason of the payment to a person other than the registered
holder of the Old Certificate surrendered or establish to the satisfaction of
Atmos and the Paying Agent that such tax has been paid or is not applicable.
The Paying Agent shall be authorized to deliver the Merger Consideration with
respect to any Old Certificate for United Cities Stock theretofore issued
which has been lost or destroyed, upon receipt of evidence satisfactory to
Atmos and the Paying Agent of ownership of the United Cities Stock represented
thereby and of appropriate indemnification. One year following the Effective
Time, Atmos, as the surviving corporation in the Merger, shall be entitled to
require the Paying Agent to deliver to Atmos any certificates representing
United Cities Stock which have not been disbursed to holders of Old
Certificates representing United Cities Stock outstanding immediately prior to
the Effective Time, and thereafter such holders shall be entitled to look only
to Atmos (subject to abandoned property, escheat, or other similar laws) for
the New Certificates representing Atmos Shares payable upon due surrender of
their Old Certificates representing United Cities Stock. Atmos shall pay all
charges and expenses, including those of the Paying Agent, in connection with
the exchange of the Merger Consideration for certificates representing United
Cities Stock.
Section 2.03. Dissenting Shares. Notwithstanding anything in this Plan to
the contrary, shares of United Cities Stock that are issued and outstanding
immediately prior to the Effective Time and that are held by a holder
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of United Cities Stock who has not voted such shares in favor of adoption of
this Plan and shall have properly demanded dissenters' rights for such shares
in the manner provided in Section 11.70(a) of the Illinois Business
Corporation Act ("United Cities Dissenting Shares") shall not be converted
into the right to receive the Merger Consideration unless and until such
holder becomes ineligible for such dissenters' rights. If such holder becomes
ineligible for such dissenters' rights, then, as of the Effective Time or the
occurrence of such event, whichever occurs last, such shares shall thereupon
cease to be United Cities Dissenting Shares and shall be converted into the
right to receive the Merger Consideration as provided in Section 2.01 hereof.
Section 2.04 Treatment of United Cities Options. Following the consummation
of the Merger, Atmos agrees to continue in effect the United Cities Gas
Company Long-Term Stock Plan of 1989, as amended. Persons holding options
under such plan shall be allowed to exercise their options for Atmos Stock at
the exchange rate set forth in Section 2.01. Persons holding stock
appreciation rights under such plan shall be allowed to exercise such rights
based on the price of Atmos Stock taking into account the exchange rate set
forth in Section 2.01.
ARTICLE III
Effective Time
Section 3.01. Effective Time. The Merger shall become effective upon the
filing of articles of merger or the issuance of a certificate of merger, as
applicable, in accordance with applicable law (the "Effective Time").
Section 3.02 Amendment. At any time before or after the approval of the
Reorganization Agreement and this Plan by the respective shareholders of Atmos
and United Cities and prior to the Effective Time, the Reorganization
Agreement and this Plan may be amended in writing by Atmos and United Cities;
provided, however, that after submission of the Plan to the shareholders of
either party to the Merger, no amendment may be made which would (i) increase
or decrease the amount or change the type of consideration into which each
share of United Cities Stock shall be converted upon consummation of the
Merger or (ii) otherwise be in conflict with (S)13.1-718(I) of the Virginia
Stock Corporation Act. This Plan may not be amended except by an instrument in
writing signed by the parties hereto.
Section 3.03 Abandonment. The Merger may be abandoned at any time prior to
the Effective Time in accordance with the provisions set forth in the
Reorganization Agreement.
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EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
ATMOS ENERGY CORPORATION
AS AMENDED
ARTICLE ONE
Atmos Energy Corporation, pursuant to the provisions of Article 4.07 of the
Texas Business Corporation Act, adopted Restated Articles of Incorporation,
which accurately copied the Articles of Incorporation and all amendments
thereto that were in effect to date and such Restated Articles of
Incorporation contained no change in any provision thereof.
ARTICLE TWO
Such Restated Articles of Incorporation were adopted by resolution of the
board of directors of the corporation on the 8th day of November, 1989.
ARTICLE THREE
The Restated Articles of Incorporation have been further amended pursuant to
that certain Plan of Merger by and between Atmos Energy Corporation and United
Cities Gas Company, an Illinois and Virginia corporation. The Articles of
Incorporation and all amendments and supplements thereto as superseded by the
Restated Articles of Incorporation and as amended pursuant to the Plan of
Merger are as follows:
ARTICLE I.
The name of the corporation shall be Atmos Energy Corporation (the
"Corporation").
ARTICLE II.
The purposes for which the Corporation is organized are the transaction of
any or all lawful business for which corporations may be incorporated under
the Texas Business Corporation Act, including, but not limited to, the
transportation and distribution of natural gas by pipeline as a public
utility, except that with respect to the Commonwealth of Virginia, the
Corporation may only conduct such business as is permitted to be conducted by
a public service company engaged in the transportation and distribution of
natural gas by pipeline.
ARTICLE III.
The Corporation is incorporated in the State of Texas and the Commonwealth
of Virginia. The post office address of the registered office of this
Corporation in the State of Texas is Three Lincoln Centre, Suite 1800, 5430
LBJ Freeway, Dallas, Texas 75240, and the registered agent for service of this
Corporation at the same address is Glen A. Blanscet. The post office address
of the registered office of this Corporation in the Commonwealth of Virginia
is Riverfront Plaza, East Tower, 951 East Byrd Street, Richmond, Virginia
23219-4074, and the registered agent for service of this Corporation at the
same address is Allen C. Goolsby, III, such registered agent being a resident
of the Commonwealth of Virginia and a member of the Virginia State Bar.
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ARTICLE IV.
The period of the Corporation's duration shall be perpetual.
ARTICLE V.
The Corporation shall not commence business until it has received for the
shares consideration of the value of One Thousand Dollars ($1,000) consisting
of money, labor done or property actually received.
ARTICLE VI.
1. Number of Directors. The number of directors constituting the present
board of directors is fifteen (15); however, thereafter the number of
directors constituting the Board of Directors shall be fixed by the Bylaws of
the Corporation. No director shall be removed during his term of office except
for cause and by the affirmative vote of the holders of seventy-five percent
(75%) of the shares then entitled to vote at an election of directors. The
names and addresses of the persons who are to serve as directors until the
next annual meeting of the shareholders or until their successors are duly
elected and qualified are as follows:
NAME ADDRESS
---- -------
Travis W. Bain II............................. 2001 Coit Road
Suite 130
Plano, TX 75075
Dan Busbee.................................... 2200 Ross Avenue
Suite 2200
Dallas, TX 75201
Richard W. Cardin............................. 107 Sheffield Court
Nashville, TN 37215
Thomas J. Garland............................. Tusculum College
McCormick Hall, 1st Floor
Greeneville, TN 37743
Gene C. Koonce................................ 5300 Maryland Way
Brentwood, TN 37027-
Vincent J. Lewis.............................. Meadows Office Complex
301 Route #17, North
Rutherford, NJ 07070
Thomas C. Meredith............................ Western Kentucky University
Bowling Green, KY 42101
Phillip E. Nichol............................. 301 Commerce
Suite 2800
Ft. Worth, TX 76102
John W. Norris, Jr............................ P.O. Box 799900
Dallas, TX 75379
James F. Purser............................... Three Lincoln Centre
Suite 1800
5430 LBJ Freeway
Dallas, TX 75240
Carl S. Quinn................................. 14 East 75th Street, #8B
New York, NY 10021
Lee E. Schlessman............................. 1301 Pennsylvania Street
Penn Center, Suite 800
Denver, CO 80203
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NAME ADDRESS
---- -------
Robert F. Stephens................................... Three Lincoln Centre
Suite 1800
5430 LBJ Freeway
Dallas, TX 75240
Charles K. Vaughan................................... Three Lincoln Centre
Suite 1800
5430 LBJ Freeway
Dallas, TX 75240
Richard Ware II...................................... Plaza One/Box One
Amarillo, TX 79105
2. Election and Term. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At each annual meeting of
shareholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. Directors shall be
elected by a majority vote of the shares of the Common Stock entitled to vote
in the election of directors and represented in person or by proxy at a
meeting of shareholders at which a quorum is present. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly
equal as possible, and any additional director of any class elected by the
shareholders to fill a vacancy resulting from an increase in such class shall
hold office for a term that shall coincide with the remaining term of that
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor shall
be duly elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal from office.
ARTICLE VII.
1. Capitalization.
The aggregate number of shares which the Corporation shall have the
authority to issue is Seventy-Five Million (75,000,000) shares of Common Stock
having no par value.
2. Designation and Statement of Preferences, Limitations and Relative Rights
of Common Stock.
2.01 Subject to the provisions of law, including the Texas Business
Corporation Act and the Virginia Stock Corporation Act and to the conditions
set forth in any law, including resolution of the Board of Directors of the
Corporation, such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared and paid on the Common
Stock from time to time out of any funds legally available therefor.
2.02 The holders of the Common Stock shall exclusively possess full voting
power for the election of directors and for all other purposes. In the
exercise of its voting power, the Common Stock shall be entitled to one vote
for each share held.
3. Provisions Applicable to All Classes of Stock.
3.01 Subject to applicable law, the Board of Directors may in its discretion
issue from time to time authorized but unissued shares for such consideration
as it may determine. The shareholders shall have no pre-emptive rights, as
such holders, to purchase any shares or securities of any class which may at
any time be sold or offered for sale by the Corporation.
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3.02 At each election for directors every shareholder entitled to vote at
any meeting shall have the right to vote, in person or by proxy, the number of
shares owned by him for as many persons as there are directors to be elected.
Cumulative voting of shares of stock in the election of directors or otherwise
is hereby expressly prohibited.
3.03 The Corporation shall be entitled to treat the person in whose name any
share or other security is registered as the owner thereof, for all purposes,
and shall not be bound to recognize any equitable or other claim to or
interest in such shares or other security on the part of any other person,
whether or not the Corporation shall have notice thereof.
4. Provisions Applicable to Certain Business Combinations.
4.01 The affirmative vote of the holders of not less than seventy-five
percent (75%) of the outstanding shares of "Voting Stock" (as hereinafter
defined) held by stockholders other than a "Substantial Shareholder" (as
hereinafter defined) shall be required for the approval or authorization of
any "Business Combination" (as hereinafter defined) of the Corporation with
any Substantial Shareholder; provided, however, that the seventy-five percent
(75%) voting requirement shall not be applicable if either:
(i) The "Continuing Directors" (as hereinafter defined) of the
Corporation by the affirmative vote of at least a majority (a) have
expressly approved in advance the acquisition of the outstanding shares of
Voting Stock that caused such Substantial Shareholder to become a
Substantial Shareholder, or (b) have expressly approved such Business
Combination either in advance of or subsequent to such Substantial
Shareholder's having become a Substantial Shareholder; or
(ii) The cash or fair market value (as determined by at least a majority
of the Continuing Directors) of the property, securities or other
consideration to be received per share by holders of Voting Stock of the
Corporation in the Business Combination is not less than the "Highest Per
Share Price" or the "Highest Equivalent Price" (as these terms are
hereinafter defined) paid by the Substantial Shareholder in acquiring any
of its holdings of the Corporation's Voting Stock.
4.02 For purposes of this paragraph 4 of Article VII:
(i) The term "Business Combination" shall include, without limitation,
(a) any merger or consolidation of the Corporation, or any entity
controlled by or under common control with the Corporation, with or into
any Substantial Shareholder, or any entity controlled by or under common
control with the Substantial Shareholder, (b) any merger or consolidation
of a Substantial Shareholder, or any entity controlled by or under common
control with the Corporation, (c) any sale, lease, exchange, transfer or
other disposition of all or substantially all of the property and assets of
the Corporation, or any entity controlled by or under common control with
the Corporation, to a Substantial Shareholder, or any entity controlled by
or under common control with the Substantial Shareholder, (d) any purchase,
lease, exchange, transfer or other acquisition of all or substantially all
of the property and assets of a Substantial Shareholder or any entity
controlled by or under common control with the Corporation, (e) any
recapitalization of the Corporation that would have the effect of
increasing the voting power of a Substantial Shareholder, and (f) any
agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Combination.
(ii) The term "Substantial Shareholder" shall mean and include any
individual, corporation, partnership or other person or entity which,
together with its "Affiliates" and "Associates" (as those terms are defined
in Rule 12b-2 of the General Rules and Regulations promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act") as in effect at the
date of the adoption hereof), "Beneficially Owns" (as defined in Rule 13d-3
of the Exchange Act) an aggregate of 10 percent or more of the outstanding
Voting Stock of the Corporation, and any Affiliate or Associate of any such
individual, corporation, partnership or other person or entity.
(iii) Without limitation, any share of Voting Stock of the Corporation
that any Substantial Shareholder has the right to acquire at any time
(notwithstanding that Rule 13d-3 of the Exchange Act deems such shares to
be beneficially owned only if such right may be exercised within 60 days)
pursuant to any agreement, or upon exercise of conversion rights, warrants
or options, or otherwise, shall be deemed to be Beneficially Owned by the
Substantial Shareholder and to be outstanding for purposes of clause (ii)
above.
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(iv) For the purposes of subparagraph 4.01(ii) of this paragraph 4 of
Article VII, the term "other consideration to be received" shall include,
without limitation, Common Stock or other capital stock of the Corporation
retained by its existing stockholders other than Substantial Shareholders
or other parties to such Business Combination in the event of a Business
Combination in which the Corporation is the surviving corporation.
(v) The term "Voting Stock" shall mean all of the outstanding shares of
Common Stock entitled to vote on each matter on which the holders of record
of Common Stock shall be entitled to vote, and each reference to a
proportion of shares of Voting Stock shall refer to such proposition of the
votes entitled to be cast by such shares.
(vi) The term "Continuing Director" shall mean a Director who was a
member of the Board of Directors of the Corporation immediately prior to
the time that the Substantial Shareholder involved in a Business
Combination became a Substantial Shareholder.
(vii) A Substantial Shareholder shall be deemed to have acquired a share
of the Voting Stock of the Corporation at the time when such Substantial
Shareholder became the Beneficial Owner thereof. With respect to the shares
owned by Affiliates, Associates or other persons whose ownership is
attributed to a Substantial Shareholder under the foregoing definition of
Substantial Shareholder, if the price is paid by such Substantial
Shareholder for such shares is not determinable by a majority of the
Continuing Directors, the price so paid shall be deemed to be the higher of
(a) the price paid upon the acquisition thereof by the Affiliate, Associate
or other person or (b) the market price of the shares in question at the
time when the Substantial Shareholder became the Beneficial Owner thereof.
(viii) The terms "Highest Per Share Price" and "Highest Equivalent Price"
as used in this paragraph 4 of Article VII shall mean the highest price
that can be determined to have been paid at any time by the Substantial
Shareholder for any share or shares of that class of capital stock. If
there is more than one class of capital stock of the Corporation issued and
outstanding, the Highest Equivalent Price shall mean with respect to each
class and series of capital stock of the Corporation the amount determined
by a majority of the Continuing Directors, on whatever basis they believe
is appropriate, to be the highest per share price equivalent to the highest
price that can be determined to have been paid at any time by the
Substantial Shareholder for any share or shares of any class or series of
capital stock of the Corporation. In determining the Highest Per Share
Price and Highest Equivalent Price, all purchases by the Substantial
Shareholder shall be taken into account regardless of whether the shares
were purchased before or after the Substantial Shareholder became a
Substantial Shareholder. The Highest Per Share Price and the Highest
Equivalent Price shall include any brokerage commissions, transfer taxes
and soliciting dealers' fees paid by the Substantial Shareholder with
respect to the shares of capital stock of the Corporation acquired by the
Substantial Shareholder. In the case of any Business Combination with a
Substantial Shareholder, the Continuing Directors shall determine the
Highest Per Share Price or the Highest Equivalent Price for each class and
series of the capital stock of the Corporation.
4.03 The provisions set forth in this paragraph 4 of Article VII may not be
amended, altered, changed or repealed in any respect unless such action is
approved by the affirmative vote of the holders of not less than seventy-five
percent (75%) of the outstanding shares of Voting Stock (as defined in this
Article VII) of the Corporation at a meeting of the shareholders duly called
for the consideration of such amendment, alteration, change or repeal;
provided, however, that if there is a Substantial Shareholder (as defined in
this Article VII), such action must also be approved by the affirmative vote
of the holders of not less than seventy-five percent (75%) of the outstanding
shares of Voting Stock held by the shareholders other than the Substantial
Shareholder.
ARTICLE VIII.
The power to alter, amend or repeal the Corporation's bylaws, and to adopt
new bylaws, is hereby vested in the Board of Directors, subject, however, to
repeal or change by the affirmative vote of the holders of seventy-five
percent (75%) of the outstanding shares entitled to vote thereon.
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ARTICLE IX.
The Corporation shall indemnify, to the fullest extent permitted by law, any
person who was, is, or is threatened to be made a named defendant or
respondent in any threatened, pending, or completed action, suit, or
proceeding, whether civil, criminal, administrative, arbitrative, or
investigative, any appeal in such action, suit, or proceeding, and any inquiry
or investigation that could lead to such an action, suit, or proceeding, by
reason of the fact that such person is or was a director or officer of the
Corporation, or, while such person was a director of the Corporation, is or
was serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan, or other enterprise, against judgments, penalties
(including excise and similar taxes), fines, settlements, and reasonable
expenses (including attorney's fees) actually incurred by such person in
connection with such action, suit, or proceeding. In addition to the
foregoing, the Corporation shall, upon request of any such person described
above and to the fullest extent permitted by law, pay or reimburse the
reasonable expenses incurred by such person in any action, suit, or proceeding
described above in advance of the final disposition of such action, suit, or
proceeding.
ARTICLE X.
No director of the Corporation shall be personally liable to the Corporation
or its shareholders for monetary damages for an act or omission in such
director's capacity as a director, except for liability for (i) a breach of
the director's duty of loyalty to the Corporation or its shareholders; (ii) an
act or omission not in good faith or that involves intentional misconduct or a
knowing violation of the law; (iii) a transaction from which the director
received an improper benefit, whether or not the benefit resulted from an
action taken within the scope of the director's office; (iv) an act or
omission for which the liability of a director is expressly provided by
statute; or (v) an act related to an unlawful stock repurchase or payment of a
dividend. If the laws of the State of Texas or the Commonwealth of Virginia
are hereafter amended to authorize corporate action further eliminating or
limiting the personal liability of a director of the Corporation, then the
liability of a director of the Corporation shall thereupon automatically be
eliminated or limited to the fullest extent permitted by the laws of the State
of Texas and the Commonwealth of Virginia. Any repeal or modification of this
Article X by the shareholders of the Corporation shall not adversely affect
any right or protection of a director existing at the time of such repeal or
modification with respect to such events or circumstances occurring or
existing prior to such time.
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EXHIBIT B
October 4, 1996
Board of Directors Atmos Energy Corporation 1800 Three Lincoln Centre 5430 LBJ
Freeway Dallas, TX 75240
Attention: Mr. James F. Purser
Executive Vice President and Chief Financial Officer
Gentlemen:
Atmos Energy Corporation (the "Company") and United Cities Gas Company (the
"Subject Company") have entered into an Agreement and Plan of Reorganization
dated July 19, 1996, as amended by Amendment No. 1 to Agreement and Plan of
Reorganization dated October 3, 1996 (the "Agreement"), pursuant to which the
Subject Company will be merged with and into the Company (with the Company as
the surviving company) in a transaction (the "Merger") in which each share of
the Subject Company's common stock, no par value per share (a "Share"), will
be converted into the right to receive one share (the "Exchange Ratio") of the
common stock, no par value per share, of the Company (the "Company Shares").
The Merger is expected to be considered by the respective shareholders of the
Company and the Subject Company at special shareholders' meetings and
consummated on or shortly after the date of such meetings, subject to
applicable regulatory approvals.
You have asked us whether, in our opinion, the Exchange Ratio is fair to the
Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended September 30, 1995
and the Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending December 31, 1995, March 31,
1996 and June 30, 1996;
(2) Reviewed the Subject Company's Annual Reports, Forms 10-K and related
financial information for the five fiscal years ended December 31, 1995 and
the Subject Company's Forms 10-Q and the related unaudited financial
information for the quarterly periods ending March 31, 1996 and June 30,
1996;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Subject
Company and the Company, furnished to us by the Subject Company and the
Company.
(4) Conducted discussions with members of senior management of the
Subject Company and the Company concerning their respective businesses and
prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and the Company Shares and compared them with that of certain
publicly traded companies which we deemed to be reasonably similar to the
Subject Company and the Company, respectively;
(6) Compared the results of operations of the Subject Company and the
Company with that of certain companies which we deemed to be reasonably
similar to the Subject Company and the Company, respectively;
(7) Compared the proposed financial terms of the transactions
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
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(8) Considered the pro forma effect of the Merger on the Company's
capitalization ratios and earnings, cash flow and book value per share;
(9) Reviewed the Agreement; and
(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us by
the Subject Company and the Company, and we have not assumed any
responsibility for independent verification of such information or undertaken
an independent appraisal of the assets of the Subject Company or the Company.
With respect to the financial forecasts furnished by the Subject Company and
the Company, we have assumed that they have been reasonably prepared and
reflect the best currently available estimates and judgement of the Subject
Company's or the Company's management as to the expected future financial
performance of the Subject Company or the Company, as the case may be. With
respect to the estimates of potential synergies furnished by the Company, we
have assumed that such estimates have been reasonably prepared and reflect the
best currently available estimates and judgement of management of the Company
as to the expected synergies from the Merger. We have also assumed that the
Merger will qualify for pooling-of-interests accounting treatment and as a
tax-free transaction for the shareholders of the Company and the Subject
Company.
In the ordinary course of our business, we may actively trade the securities
of the Company or the Subject Company for our own account and for the accounts
of customers and, accordingly, may at any time hold a long or short position
in such securities.
On the basis of, and subject to the foregoing, we are of the opinion that
the Exchange Ratio is fair to the Company from a financial point of view.
Very truly yours,
Merrill Lynch, Pierce, Fenner &
Smith Incorporated
/s/ Charles M. Davis, Jr.
By___________________________________
Charles M. Davis Jr.Director
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EXHIBIT C
October 4, 1996
Board of Directors
United Cities Gas Company
5300 Maryland Way
Brentwood, TN 37027
Gentlemen:
United Cities Gas Company (the "Company") and Atmos Energy Corporation
("Atmos") have entered into an Agreement and Plan of Reorganization (the
"Agreement") pursuant to which the Company will merge with and into Atmos (the
"Merger"), in which each share of the Company's common stock (the "Shares")
will be converted into the right to receive one (the "Exchange Ratio") share
of common stocks of Atmos.
You have asked us whether or not, in our opinion, the Exchange Ratio is fair
to the common shareholders of the Company from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed, among other public information, the Company's Annual
Reports, Forms 10-K and related financial information for the four fiscal
years ended December 31, 1995 and the Company's Form 10-Q and the related
unaudited financial information for the six months ended June 30, 1996;
(2) Reviewed, among other public information, Atmos' Annual Reports,
Forms 10-K and related financial information for the four fiscal years
ended September 30, 1995 and Atmos' Form 10-Q and the related unaudited
financial information for the nine months ended June 30, 1996;
(3) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the Company
and Atmos, furnished to us by the Company and Atmos, respectively;
(4) Conducted discussions with members of senior management of the
Company and Atmos concerning their respective businesses and prospects;
(5) Reviewed the historical market prices and trading activity for the
Shares and the Atmos shares and compared such prices and trading histories
with those of certain publicly traded companies which we deemed to be
relevant;
(6) Compared the financial position and operating results of the Company
and Atmos with that of certain publicly traded companies which we deemed to
be relevant;
(7) Compared the financial terms of the Merger with the financial terms
of certain other business combinations which we deemed to be relevant;
(8) Considered the potential pro forma effects of the Merger on Atmos;
(9) Reviewed the Agreement dated July 19, 1996 and Amendment No. 1
thereto dated October 3, 1996; and
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(10) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary including our assessment of regulatory, general economic,
market and monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available, supplied or otherwise
communicated to us by the Company and Atmos and we have not independently
verified the same. We have assumed that the financial forecasts examined by us
were reasonably prepared on bases reflecting the best currently available
estimates and good faith judgements of the management of the Company and Atmos
as to the future performance of the Company and Atmos, respectively. We have
also assumed, with your consent, that: (i) the Merger will be accounted for
under the pooling-of-interests method of accounting; (ii) the Merger will be a
tax-free reorganization; and (iii) any material liabilities (contingent or
otherwise, known or unknown) of the Company and Atmos are as set forth in the
consolidated financial statements of the Company and Atmos, respectively. We
have not made an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of the Company or Atmos, nor have we
been furnished with any such evaluations or appraisals. Our opinion is based
upon economic, monetary and market conditions existing on the date hereof.
Furthermore, we express no opinion as to the price or trading range at which
the shares of Atmos will trade from the date hereof.
Our opinion is directed to the Board of Directors of the Company and does
not constitute a recommendation to any shareholder of the Company as to how
any such shareholder should vote on the Merger. This opinion does not address
the relative merits of the Merger and other transactions or business
strategies discussed by the Board of Directors of the Company as alternatives
to the Merger or the decision of the Board of Directors of the Company to
proceed with the Merger. PaineWebber Incorporated was not requested or
authorized to solicit, and did not solicit, potential purchasers of the
Company.
This opinion has been prepared solely for the use of the Board of Directors
of the Company and shall not be reproduced, summarized, described or referred
to or given to any other person or otherwise made public without the prior
written consent of PaineWebber Incorporated; provided, however, that this
letter may be reproduced in full in a proxy statement/prospectus relating to
the Merger.
PaineWebber Incorporated is currently acting as financial advisor to the
Company in connection with the Merger and will receive a fee upon the delivery
of this opinion and upon consummation of the Merger. In the past, PaineWebber
Incorporated and its affiliates have provided investment banking services to
the Company and have received fees for rendering these services.
In the ordinary course of our business, we may trade the securities of the
Company and Atmos for our own account and for the accounts of our customers
and, accordingly, may at any time hold long or short positions in such
securities.
On the basis of, and subject to the foregoing, we are of the opinion that,
as of the date hereof, the Exchange Ratio is fair to the common shareholders
of the Company from a financial point of view.
Very truly yours,
PaineWebber Incorporated
/s/ PaineWebber Incorporated
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EXHIBIT D
ILLINOIS BUSINESS CORPORATION ACT
5/11.65 RIGHT TO DISSENT.--(a) A shareholder of a corporation is entitled to
dissent from, and obtain payment for his or her shares in the event of any of
the following corporate actions:
(1) consummation of a plan of merger or consolidation or a plan of share
exchange to which the corporation is a party if (i) shareholder
authorization is required for the merger or consolidation or the share
exchange by Section 11.20 or the articles of incorporation or (ii) the
corporation is a subsidiary that is merged with its parent or another
subsidiary under Section 11.30;
(2) consummation of a sale, lease or exchange of all, or substantially
all, of the property and assets of the corporation other than in the usual
and regular course of business;
(3) an amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(i) alters or abolishes a preferential right of such shares;
(ii) alters or abolishes a right in respect of redemption, including
a provision respecting a sinking fund for the redemption or repurchase,
of such shares;
(iii) in the case of a corporation incorporated prior to January 1,
1982, limits or eliminates cumulative voting rights with respect to
such shares; or
(4) any other corporate action taken pursuant to a shareholder vote if
the articles of incorporation, by-laws, or a resolution of the board of
directors provide that shareholders are entitled to dissent and obtain
payment for their shares in accordance with the procedures set forth in
Section 11.70 or as may be otherwise provided in the articles, by-laws or
resolution.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this Section may not challenge the corporate action creating his
or her entitlement unless the action is fraudulent with respect to the
shareholder or the corporation or constitutes a breach of a fiduciary duty
owed to the shareholder.
(c) A record owner of shares may assert dissenters' rights as to fewer than
all the shares recorded in such person's name only if such person dissents
with respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name and address of each person on whose
behalf the record owners asserts dissenters' rights. The rights of a partial
dissenter are determined as if the shares as to which dissent is made and the
other shares recorded in the names of different shareholders. A beneficial
owner of shares who is not the record owner may assert dissenters' rights as
to shares held on such person's behalf only if the beneficial owner submits to
the corporation the record owner's written consent to the dissent before or at
the same time the beneficial owner asserts dissenters' rights.
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5/11.70 PROCEDURE TO DISSENT.--(a) If the corporate action giving rise to
the right to dissent is to be approved at a meeting of shareholders, the
notice of meeting shall inform the shareholders of their right to dissent and
the procedure to dissent. If, prior to the meeting, the corporation furnishes
to the shareholders material information with respect to the transaction that
will objectively enable a shareholder to vote on the transaction and to
determine whether or not to exercise dissenters' rights, a shareholder may
assert dissenters' rights only if the shareholder delivers to the corporation
before the vote is taken a written demand for payment for his or her shares if
the proposed action is consummated, and the shareholder does not vote in favor
of the proposed action.
(b) If the corporate action giving rise to the right to dissent is not to be
approved at a meeting of shareholders, the notice to shareholders describing
the action taken under Section 11.30 or Section 7.10 shall inform the
shareholders of their right to dissent and the procedure to dissent. If, prior
to or concurrently with the notice, the corporation furnishes to the
shareholders material information with respect to the transaction that will
objectively enable a shareholder to determine whether or not to exercise
dissenters' rights, a shareholder may assert dissenter's rights only if he or
she delivers to the corporation within 30 days from the date of mailing the
notice a written demand for payment for his or her shares.
(c) Within 10 days after the date on which the corporate section giving rise
to the right to dissent is effective or 30 days after the shareholder delivers
to the corporation the written demand for payment, whichever is later, the
corporation shall send each shareholder who has delivered a written demand for
payment a statement setting forth the opinion of the corporation as to the
estimated fair value of the shares, the corporation's latest balance sheet as
of the end of a fiscal year ending not earlier than 16 months before the
delivery of the statement, together with the statement of income for that year
and the latest available interim financial statements, and either a commitment
to pay for the shares of the dissenting shareholder at the estimated fair
value thereof upon transmittal to the corporation of the certificate or
certificates, or other evidence of ownership, with respect to the shares, or
instructions to the dissenting shareholder to sell his or her shares within 10
days after delivery of the corporation's statement to the shareholder. The
corporation may instruct the shareholder to sell only if there is a public
market for the shares at which the shares may be readily sold. If the
shareholder does not sell within that 10 day period after being so instructed
by the corporation, for purposes of this Section the shareholder shall be
deemed to have sold his or her shares at the average closing price of the
shares, if listed on a national exchange, or the average of the bid and asked
price with respect to the shares quoted by a principal market maker, if not
listed on a national exchange, during that 10 day period.
(d) A shareholder who makes written demand for payment under this Section
retains all other rights of a shareholder until those rights are cancelled or
modified by the consummation of the proposed corporate action. Upon
consummation of that action, the corporation shall pay to each dissenter who
transmits to the corporation the certificate or other evidence of ownership of
the shares the amount the corporation estimates to be the fair value of the
shares, plus accrued interest, accompanied by a written explanation of how the
interest was calculated.
(e) If the shareholder does not agree with the opinion of the corporation as
to the estimated fair value of the shares or the amount of interest due, the
shareholder, within 30 days from the delivery of the corporation's statement
of value, shall notify the corporation in writing of the shareholder's
estimated fair value and amount of interest due and demand payment for the
difference between the shareholder's estimate of fair value and interest due
and the amount of the payment by the corporation or the proceeds of sale by
the shareholder, whichever is applicable because of the procedure for which
the corporation opted pursuant to subsection (c).
(f) If, within 60 days from delivery to the corporation of the shareholder
notification of estimate of fair value of the shares and interest due, the
corporation and the dissenting shareholder have not agreed in writing upon the
fair value of the shares and interest due, the corporation shall either pay
the difference in value demanded by the shareholder, with interest, or file a
petition in the circuit court of the county in which either the registered
office or the principal office of the corporation is located, requesting the
court to determine the fair value of the shares and interest due. The
corporation shall make all dissenters, whether or not residents of this
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State, whose demands remain unsettled parties to the proceeding as an action
against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publications as provided by law. Failure of the corporation to commence an
action pursuant to this Section shall not limit or affect the right of the
dissenting shareholders to otherwise commence an action as permitted by law.
(g) The jurisdiction of the court in which the proceeding is commenced under
subsection (f) by a corporation is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the power
described in the order appointing them, or in any amendment to it.
(h) Each dissenter made a party to the proceeding is entitled to judgment
for the amount, if any, by which the court finds that the fair value of his or
her shares, plus interest, exceeds the amount paid by the corporation or the
proceeds of sale by the shareholder, whichever amount is applicable.
(i) The court, in a proceeding commenced under subsection (f), shall
determine all costs of the proceeding, including the reasonable compensation
and expenses of the appraisers, if any, appointed by the court under
subsection (g), but shall exclude the fees and expenses of counsel and experts
for the respective parties. If the fair value of the shares as determined by
the court materially exceeds the amount which the corporation estimated to be
the fair value of the shares or if no estimate was made in accordance with
subsection (c), then all or any part of the costs may be assessed against the
corporation. If the amount which any dissenter estimated to be the fair value
of the shares materially exceeds the fair value of the shares as determined by
the court, then all or any part of the costs may be assessed against that
dissenter. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable, as
follows:
(1) Against the corporation and in favor of any or all dissenters if the
court finds that the corporation did not substantially comply with the
requirements of subsections (a), (b), (c), (d), or (f).
(2) Against either the corporation or a dissenter and in favor of any
other party if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this Section.
If the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the
fees for those services should not be assessed against the corporation, the
court may award to that counsel reasonable fees to be paid out of the
amounts awarded to the dissenters who are benefited. Except as otherwise
provided in this Section, the practice, procedure, judgment and costs shall
be governed by the Code of Civil Procedure.
(j) As used in this Section:
(1) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the consummation of the corporate action
to which the dissenter objects excluding any appreciation or depreciation
in anticipation of the corporate action, unless exclusion would be
inequitable.
(2) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
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